DCA Market Outlook
DCA’s CURRENT MARKET VIEW*
WE OBSERVE CURRENTLY:
- There is a MAD MAN in RUSSIA.
- The global financial system is in disarray.
- Oil prices fluctuate between $80 and $110 per barrel.
- Natural gas is unaffordable in Europe for most businesses and consumers.
- Food prices have increased in double digit percentages.
- Rents have increased by double digit percentages.
- The US and Europe appear to be in recession.
- China’s real estate debacle threatens its banking system.
- The Fed is providing dollar swap lines to 3 Central banks.
- The Fed has raised interest rates to the point where the 2-year US Treasury Note is yielding over 4% and mortgage rates, in some places, are 6%.
- The US dollar continues to escalate in value versus virtually all of the world’s currencies.
- The US bond market is down by a record percentage this year.
- The Dow Jones Industrial Average is down approximately 21% in 2022.
- The S&P 500 stock index is down almost 24% in 2022.
- The NASDAQ stock index has plummeted 32% in 2022.
WE THINK WE MIGHT SEE AHEAD:
- The Ukraine conflict will be resolved in 2023.
- The pressures on the global financial system will moderate.
- Oil prices will be in the $50 to $60 per barrel range by the second half of 2023.
- Natural gas will become more affordable in Europe for most businesses and consumers by the second half of 2023.
- Food prices will be lower by the second half of 2023.
- Rents and home prices will be lower than current or peak levels by the second half of 2023.
- The US and Europe will enter recovery by the second half of 2023.
- The Fed and the world’s Central banks will be cutting interest rates by the second half of 2023.
- US Mortgage rates will be back into the lower 4% range by the second half of 2023.
- The US dollar will weaken by at least 10% in 2023.
- The US bond markets, particularly longer duration, corporate and high yield will appreciate in valuation, by double digits. Interest rates will be noticeably lower in 2023.
- The US equity markets will appreciate by double digits, led by NASDAQ and the Russell 2000 index by the end of 2023.
- For the first time in years, emerging markets equity and local currency denominated bond markets will outperform US indices in 2023.
- Bitcoin and Ethereum will make new all-time highs in 2023.
This all assumes, among other things, the Fed will flinch at the first signs of contraction, and/or unemployment begins to rise toward 5% or above in the next 6 months. An overly hawkish Fed risks a deeper recession and ultimately a deflationary environment. We do not believe the Fed will err on the side of tighter monetary conditions for too long, though they might be approaching the time to back off sooner than anticipated.
DCA continues to be positioned defensively in the public markets. We believe that DOW 27,000 remains a possibility, though not necessarily a certainty. In our view, the Fed should moderate its actions from this point forward. We intend to begin to adjust our portfolio by reducing cash, adding to longer term bonds and allocating continuously toward growth in the public equity markets.
DCA Asset Management Inc.
*One of DCA’s guiding principles is that we will communicate with our investors and prospective investors as candidly as possible because we believe investors and prospective investors benefit from understanding our investment philosophy and approach. Our views and opinions regarding the prospects of investments and/or the economy are forward looking statements as defined under the U.S. federal securities laws, which may or may not be accurate and may be materially different over future periods. Generally, the words “believe,” “expect,” “intend,” “estimate,” “anticipate,” “project,” “will,” “may,” “should,” “plan,” or the negative of such terms and similar expressions identify forward looking statements. Forward looking statements are subject to certain risks and uncertainties that could cause actual results to materially differ from an investor’s historical experience and current expectations or projections indicated in any forward looking statements. These risks include, but are not limited to, equity securities risk, corporate bonds risk, credit risk, interest rate risk, leverage and borrowing risk, additional risks of certain investments, management risk, and other risks. We disclaim any obligation to update or alter any forward looking statements, whether as a result of new information, future events, or otherwise. You should not place undue reliance on forward looking statements, which speak only as of the date they are made.