Big drags on the S&P as 2023 started with crosscurrents such as breadth often positive, while both S&P and DJIA were down.

Pixabay

Oil & Semiconductors did lead the downside, in many cases reflecting pushing 'gains' into new tax year plus generally buying in stocks that were in the vicinity of last year's lows.

How long the Fed stays at the higher rates (which are historically normal but a big inhibition because 'too low for two long' pushed investors into equities) far beyond normal guidelines versus fixed income, and that's a distortion they've actually caused and takes time to evolve into adjusted parameters.

The general outlook is 'short and sharp' recession, although I don't see that as a probability of breaking inflation entirely, even though we're already past the 'peak inflation' (at least in terms of pace), probably within months of beginning negotiations over disengaging Russia and Ukraine (though not yet), and also a period of time which is harder to time-line with regard to China's post-COVID emergence. However, President Xi's weekend comments recognize a need to normalize business relationships, while saying he'll punish 'travel deniers'.

What neither politicians nor central bankers can change is onset of extreme climate changes. I've mentioned things like shifting waters possibly pressing the major tectonic plates of the Earth, hence climate change rising earthquake risks, beyond the obvious of rising tides, floods, blizzards, and fires / drought.

This last area matters, not only because the Fed will need to 'declare victory' and calm down, but because you have an intrinsic higher level of pricing that negates a banker's ability to tone it down 'much'. Poor crops and harvests do not depend on monetary policy alone. Nor can they be improved. I just heard from my cousin near Bordeaux who informs me that they barely missed their own vineyards burning in the Summer (I've noted that months ago), but also mentioned the winter in France is pretty warm, which implies not so great for the grapes this coming spring and summer. Just an example of distortions. I think the accelerated pace of Greenland's glaciers melting is an issue too, as well as the argument that University experiments of 'seeding the atmosphere' to block heating is interesting, but given weather of the moment, isn't it risky?

Basically I'm not exploring the 'shopping list' of variables because we have on many occasions, and I don't dispute the general concerns the IMF trotted-out for New Years, which probably contributed to the uncertain kick-off to 2023. In my view, what's important is what can be resolved and what just can't be. We will explore the issues as time goes on, everyone knows what the threats are, although much of it has been already experienced or (in markets) discounted.

In-sum: 

Macro headwinds persist and don't 'all' change just with the calendar. However tax-related considerations do, and that's part of what Tuesday saw, in terms of moves to shift gains or losses into tax-year 2023.

That's exactly how you had phases (much of the day) of down macro Indexes but positive breadth, as the foot came off the jugular of depressed stocks, at least a bit, and a handful of winning stocks came down as gains were taken in a new tax year. This kind of erratic chop to start-off a year is not abnormal.

De-risking is a topic with revenue growth slowing for so many industries. And what might turn-out to be a big topic will be 're-risking' if certain achievements occur in 2023, not just in the EV 'space', but particularly with China and 'war'.

Perhaps the biggest factor in tech, which aside Energy really is the heart of a modern market, will be the impact of the semiconductor 'demand' downturn as the supercycle came to an end in my view after the pandemic cycle 'and' what few will acknowledge, the collapse of crypto mining and Bitcoin (BITCOMP) in-particular.

But some of this is being offset (a process) by EV's, AR, AI and new interests, although many of those are in an evolutionary process with limited demand so far. Just how semiconductor demand will fall isn't clear, might bottom 'soon' in some aspects. But, as CEO's themselves have acknowledged, they have no choice but to gear-up up for the emerging newer areas. In my view, industrial automation -which indirectly is similar to EV's using 'Silicon Carbide' chips, will be less badly impacted, and hence will be key areas in the coming months but that's better for equipment providers than for the big chip firms, for awhile.

Bottom-line: 

I will explore more about the year's challenges over time, while at the moment this is a choppy crosscurrent situation as noted, and that might in fact persist for a day or two.

More By This Author: