Stocks ended last week down slightly after more signs emerged that inflation may be starting to abate.
We are holding onto stocks because the current market rally may have a little further to run.
However, we do not expect this bear market to be over. The $SPX500 may fall to the low 3000s next year, possibly as early as Q1.
To be more confident that a sustainable market trough has been reached, we would like to see lower valuations and a reversal in leading economic indicators. At the moment, leading indicators look rather depressing, predicting a very weak economy in 2023.
On a longer-run horizon, on the other hand, we remain bulls. Value stocks ($VTV) are expected to return 4-11% a year after inflation over the next 10 years. Value stocks can thus be expected to comfortably beat Growth stocks ($VUG) and bonds ($LQD $HYG), whose returns should average around 2% a year.
Patient investing in Value stocks will be rewarded, in our view.