Market cycles: What happened in 2023?

Bob Iaccino, Chief Market Strategist and Co-Founder of Path Trading Partners, joins us live every Friday from 11am ET, as our risk management educator.

With 30 years’ experience working as an active investor in equities, commodities, futures and FX there are few better to talk on the subject of risk management.

Bob has developed a method for breaking down his key fundamentals of risk management, in a way that he thinks retail traders can understand and use to get actionable insights to bring into their own trading.

Below are some excerpts of Bob’s thoughts from a recent live session.

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The best performing sectors in 2023: The best performing sector was the technology sector, up about 54%.

It has never actually happened before where you see an outperformance by this degree and then it’s repeated the following year. That doesn’t mean it can’t happen, but it has never happened before, where you get this 20% plus performance and then it repeats the following year.

The construction sector was up greater than 50% - that’s interesting given that mortgage rates rose. This tells us that that the Federal Reserve’s rate hikes have not bitten into construction yet.

Information technology is up almost 21% and it’s the same scenario as technology, it would be difficult for it to repeat that, although its easier for the hardware sector to repeat it because demand tends to be a trend as opposed to a one off.

Understanding the four economic regimes:

Early Recovery: consists of higher growth and lower inflation. The historical equity performance is excellent across the board. Even the underperformers within this regime tend to be positive.

Reflation: shows higher growth and higher inflation. This is also an excellent economic regime for stocks, but there are some underperformers in the reflation scenario.

Stagflation: is when you have lower growth and higher inflation and that’s a moderate base for equities.

Deflation: is lower growth and lower inflation which is poor for equities.

Which economic regime were we in during 2023? We likely ended 2023 in Early Recovery. The interesting part is that the rate of the increase of inflation fell in 2023. Inflation itself, however, was not negative it was still positive, we still experienced price growth.

We did have growth in the U.S economy, although lower, we saw a 4.9% GDP growth in the U.S.

We also saw inflation change from +7% to +4%; that is why we closed 2023 in the economic regime: Early Recovery.

That’s why we had excellent index performance: The Dow, S&P and the Nasdaq, all but the Russell, really, in the U.S, performed very, very well.

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