November 2022 Newsletter

Welcome to the November 2022 Newsletter. This month, we’re discussing the economy, employment, financial terminology, and more.




We’re maintaining our 2023 S&P 500 Index operating earnings estimate of $235 and an easing of the strength of the U.S. dollar. We expect the S&P 500 Index to achieve new record highs in the second half of 2023, based on our $235 operating earnings estimate and our projected forward price/earnings ratio range of 18 to 20 times.

An important element of identifying a stock market bottom is stock market sentiment. “Sentiment” is a contrary indicator; the lower the sentiment is, the more likely the stock market has hit a bottom and is ready to increase. The American Association of Individual Investors (AAII) conducted a survey of its members which showed extreme bearish levels on September 21 and 28. It is worth noting that the financial media has also been extremely negative on the market outlook with a steady parade of dire market forecasts. These indicators of extreme bearish sentiment reinforced our decision to identify in last month’s newsletter that “the market is attractive for purchase.”

All portfolios are fully invested and based upon each investor’s objectives, risk tolerance, and time frame.

John M. Templeton was an American born stock investor featured in the Lorenz November 2022 newsletter.

John Templeton

“Bull markets are born on pessimism,
Grow on skepticism,
Mature on optimism,
And die on euphoria.”
– John Templeton

John M. Templeton (November 1912 to July 2008) was an American born stock investor, mutual fund manager, and philanthropist. In the 1930s, after graduating Yale at the top of his class, he became a Rhodes Scholar.

In 1954, he created Templeton Growth Fund which grew over 15% for 38 years (the stock market’s long-term average growth is 10%). Money magazine named him the greatest stock picker of the century in 1999. In 2007, Templeton was named one of Time magazine’s 100 Most Influential People under the category of a “Power Giver” for his generous donations.



Pop Quiz

In 1860, Abraham Lincoln became the first Republican ever elected President. When holding the office of President, which political party has given 60/40 investors (60% stocks & 40% bonds) the best annual compound returns over the past 160 years?

The answer is at the bottom of the newsletter.


September 2019 to September 2022 Unemployment Rate graph featured in the Lorenz November newsletter.











Unemployment Rates by Education Level, September 2022

Less Than High School Diploma5.6%
High School Graduate, No College3.7%
Some College or Associate’s Degree2.9%
Bachelor’s Degree or Higher1.8%

Average hourly earnings of all employees on private nonfarm payrolls were up 5.0% compared to a year ago.

The extraordinary strength of the U.S. labor market is allowing the Federal Reserve to be aggressive in raising interest rates to fight inflation.


Leading Economic Indicators (LEI)

The LEI for September dropped by 0.4%—the seventh consecutive monthly decline. Below are the previous monthly LEI results:

  • August decreased 0.3%
  • July decreased 0.5%
  • June decreased 0.7%
  • May decreased 0.6%
  • April decreased 0.4%
  • March decreased 0.1%

These seven consecutive declines in the LEI signal a potential recession.


Gross Domestic Product (GDP)

The Bureau of Economic Analysis said the “advance” estimate for GDP increased by 2.6% in the third quarter of 2022 compared to decreases of 0.6% in the second quarter and a decrease of 1.6% in the first quarter.


Q3 Real GDP graph featured in Lorenz November newsletter.

Annual inflation remained the same in September at 6.2% as measured by the Personal Consumption Expenditures (PCE) index. But, the core PCE index—which excludes food and energy—increased to 5.1% in September from 4.9% in August!

Here is a little bit of PCE core inflation history this cycle:

  • September 5.1%
  • August 4.9%
  • July 4.7%
  • June 5.0%
  • May 4.9%
  • April 5.0%
  • March 5.2%
  • February 5.3% (peak PCE core inflation this cycle based on January’s data)
  • January 5.2%

Long-term inflation expectations can be estimated by measuring the differences between Treasury bond yields & TIPS real yields of the same maturities. Results are:

Bond MaturitiesFuture Annual Inflation Expectations
5 Year2.67%
10 Year2.52%
30 Year2.53%

This month’s estimated annual inflation numbers above are 46 basis points higher on average compared to last month.


The Public Debt as Issued by the U.S. Treasury, October 31, 2022

$31,251,356, 000,000


Last month it was $30,924,153,770,000.

Graph of the U.S. National Debt over the last 100 years featured in the Lorenz November newsletter.

Our national debt is dangerously high, produced by political pork, and is an inescapable liability. How can this be turned around? First, we must elect new politicians with courage to stop kicking the can down the road and then cut spending.



Important Dates in November

November 1-2 – The seventh Federal Open Market Committee (FOMC) meeting of 2022.

November 6
– Fall back! Set your clocks back one hour.

November 8 – Election Day

November 11 – Veterans Day. In 1918, Armistice Day as it was called then, celebrated the treaty that ended World War I. The signing was in the 11th month on the 11th day at the 11th hour.

November 22, 1963 – John F. Kennedy, the 35th U.S. President was assassinated in Dallas, Texas. The President was pronounced dead the same day. Kennedy was the fourth U.S. President to be assassinated in office.

November 24 – Thanksgiving was first celebrated in 1621 in Plymouth, MA. It was declared a holiday first by President Lincoln in 1863 to help bring the country together as the Civil War progressed until 1865.

November 25 – Native American Heritage Day



The Stock Market


This month we have quotes from two important Wall Street executives.

David Kostin is the Goldman Sachs Chief U.S. Equity Strategist based in New York featured in the Lorenz November 2022 newsletter.

David Kostin


David Kostin is the Goldman Sachs Chief U.S. Equity Strategist based in New York.

On October 11, 2022, David said on CNBC, “High inflation and increasing interest rates have been the driver for lower valuations. High inflation is good for corporate revenues as revenues go up when companies raise their prices. But high inflation is terrible for corporate profit margins because both material and labor costs keep going up.”

Profit Margins in Percent = (Revenue minus Expenses) / Revenue X 100%

“We expect 2023 earnings to be 3% higher than 2022 earnings assuming there is a soft landing and no recession. If there is a hard landing in 2023, we expect earnings next year will be 11% lower than in 2022.”


Josh Brown is the CEO of Ritholtz Wealth Management in New York, NY featured in Lorenz Financial October Newsletter.

Josh Brown

Josh Brown is the CEO of Ritholtz Wealth Management, New York, NY.

Josh said on October 12 on CNBC, “The number one question we are getting from our clients is, ‘If corporate profits are predicted to come down next year, why would we want to be invested in the stock market now?’”

“So, we looked at S&P 500 Index annual earnings from 1930 to 2021, and this is what we found. We found 61 years earnings were up and 31 years earnings were down, all compared to the previous year.

“If a client only invested in the years when earning were up, their long-term results would be +10.2% per year. If a client only invested in the years when earning were down, their long-term results would be +9.8% per year. Almost identical!

“Our conclusion is the path of earnings does not necessarily tell an investor what stocks are going to do in any given year or over the long-term. So yes, we know corporate earnings forecasts for 2023 are too high right now. They are starting to come down, but that does not translate into a sell signal today.”




Stock Market Valuation

Let’s look at some recent history of annual corporate earnings vs stock market performance.

Table displaying the recent history of annual corporate earnings vs stock market performance featured in the Lorenz November 2022 newsletter.






In the very long term, stock prices are determined by corporate earnings. The higher the earnings, the higher the stock market. But as above, corporate earnings and stock market performance can be very different when only looking at a single year. Why?

It all has to do with the Price/Earnings ratio, or simply PE ratio. Let’s look at 2022. Earnings are expected to be 8% higher this year than last year, but the stock market is in an ugly bear market, down 20% as of the middle of October. See the chart below.

Table displaying the expected corporate earnings in 2022 featured in the Lorenz November 2022 newsletter.





S&P 500 Index = PE Ratio   X   S&P 500 Index earnings per share


The conclusion is the stock market was higher at the start of the year because the PE ratio was higher, not because corporate earnings were higher. The PE is now lower causing the stock market to be substantially lower. What has driven the PE lower? The Federal Reserve is fighting inflation by increasing interest rates. So, in 2022, higher interest rates are driving the stock market lower.

As per David Kostin of Goldman Sachs above, his prediction for 2022 is this year will end at 3600. Where are two other large brokerage houses predicting for the S&P? See the chart.

Table displaying predictions of large brokerage houses featured in the Lorenz November 2022 newsletter.





Our stock market upgrade last month also reaffirmed our overall market view as we expect the S&P 500 Index to make new highs by the second half of 2023 as the economy moves past the inflation and supply-chain challenges of 2022.


Monthly Performance of the S&P 500 Index















Recommended Action for Your Stock Portfolio

Understand your risk tolerance. The old rule of thumb is to have a 60/40 portfolio, 60% stocks and 40% bonds. This will not be perfect for everyone, but if you don’t know where to start, start here. Keep in mind stocks perform better over the long term than bonds, but bonds are less volatile.

Don’t sell now as the market has hit bottom and is headed higher.

If you have cash destined for the stock market, you can now move that cash into a diversified stock portfolio.

Stay diversified and stay away from sharks. If you think you’re suffering a shark attack by a commission-based salesperson, call or email Mark at Lorenz Financial for advice.



    The Job Openings and Labor Turnover Survey (JOLTS) is a monthly survey by the Department of Labor that publishes data on job openings, hires, and separations within the U.S. labor market.

    The availability of unfilled jobs—the job openings rate—is an important measure of the tightness of the job market when compared to the number of unemployed people across the country. Data is sampled monthly from 21,000 U.S. businesses. The JOLTS survey covers all nonagricultural industries in the public and private sectors for the 50 states and the District of Columbia.

    For example, this month’s data shows 10.1 million open jobs compared to 5.5 million Americans unemployed. The obvious conclusion is our labor market is still very tight.



    OK, Now What Do I Do?

      So, in last month’s newsletter, we called a bottom for this bear market and announced, “the market is attractive for purchase.” We believe the existing market bottom will hold, but there are no guarantees. We have had four nearly identical closures for the S&P 500 Index that represent the bottom. Here they are:


      September 303,585.62
      October 113,588.84
      October 123,577.03
      October 14 3,583.07


      These four closures so close together represent a hard bottom. It will take a devastating event to drive the stock market to close below this level of support.

      If you rode the market down from January this year to mid-October, just hold on and ride it back up. Investors will not be made whole by the end of this year, but a year from now, we all should be in pretty good shape. Continue to rely on your patience and courage to stay invested for the long term.

      For those still working, please continue to invest every pay period into your employer’s retirement plan (401K, 403B, 457, state or federal retirement plan) and your’s and your spouse’s IRAs.




      Social Security checks will be 8.7% larger in 2023—the largest cost-of-living adjustment to benefits in 40 years. The extra funds will provide relief for many of the roughly 70 million Social Security recipients whose budgets have been stretched thin by high inflation and whose nest eggs have been walloped by the reeling stock and bond markets.

      Just over 40% of Americans, age 65 and older, rely on Social Security for half or more of their income. The Social Security Administration also said the maximum amount of earnings subjected to the Social Security tax will increase to $160,200 in 2023 up from $147,000 this year.




      Gavin Newsom’s Stealth Tax Increase

      Source: The Wall Street Journal, October 6, 2022, page A16


      Without any fanfare, California Governor Newsom quietly signed a new state income tax increase for all California workers. The bill raises state income taxes by another 1.1%. For middle-class workers earning $61,214 to $312,686, they will now pay 10.4% of their wages to the state on top of federal income taxes and FICA taxes. This 10.4% state tax rate is higher than what millionaires pay in every state except New York, New Jersey, and Hawaii.

      The tax is to increase the pay for workers who take Family Leave. Currently, Family Leave pay is 60% to 70% of an employee’s current wages. The new bill increases Family Leave pay to 70% to 90%. The state says the new 1.1% tax increase will not be enough to pay for the new benefits so the tax rate increase will likely go to 1.5% in the years ahead.

      States with no income taxes such as Texas, Wyoming, South Dakota, Alaska, Nevada, and Florida are looking better and better.



      California to Doctors: Agree or Shut Up

      Source: The Wall Street Journal, October 12, 2022, page A18


      California Democrats last month enacted legislation that empowers the state medical board to discipline doctors who “disseminate misinformation or disinformation” that contradicts the “contemporary scientific consensus.”


      The California medical board has 15 members, seven of whom are not even medical doctors. Its president is an environmental attorney. Another runs a life coaching company. The real purpose of the law is to silence doctors who disagree with the public-health establishment.


      A lawsuit filed last week by two doctors makes a strong argument that California’s new law violates their First Amendment freedom of speech rights and is unconstitutionally vague under the Fourteenth Amendment.



          The Bond Market


          The Fed would like to get the real (after inflation) federal funds rate into positive territory. This will happen when a combination of a higher federal funds rate and a lower core-PCE inflation rate develops. For example, after the November and December FOMC meetings, we expect the federal funds rate to be 4.33%. If so, we would need to see the core-PCE rate decelerate from its current 5.1% to 4.3% in January 2023 for the real federal funds rate to no longer be negative.


          However, if core-PCE inflation remains stubbornly high, the FOMC will be forced to continue to increase the federal funds rate into 2023. During the previous rate hike cycle that ended in December 2018, the Fed stopped hiking the federal funds rate when the real fed funds rate turned slightly positive at 0.4% with a 2.4% federal funds rate and a 2.0% core-PCE inflation rate.


          The Federal Reserve and its Federal Open Market Committee (FOMC)

          The FOMC is scheduled to meet on November 1 and 2. We expect the committee to increase the federal funds rate from the range of 3.0% to 3.25%, to the higher range of 3.75% to 4.0%. The FOMC will also continue with its Quantitative Tightening program of running $95 billion off its balance sheet trying to increase long-term interest rates.


          The U.S. Treasury

          According to the Congressional Budget Office (CBO), the federal budget deficit was $1.4 trillion in the fiscal year 2022. The recent decision by the Biden administration to forgive certain forms of student debt will add $425 billion to the 2023 fiscal year deficit.


          Recommended Action for Your Bond Portfolio

          We have made another addition to our bond fund recommendations this month: Certificates of Deposit. Our bond market recommendations, in order, only include the following:

          • U.S. Savings I-Bonds (max savings is $10,000 per account per year) 
          • U.S. Treasuries
          • Certificates of Deposit (only if FDIC or NCUA insured)
          • Cash
          • Ultra-Short-Term U.S. bond funds




                      Pop Quiz Answer

                        In 1860, Abraham Lincoln became the first Republican ever elected President. When holding the office of President, which political party has given 60/40 investors (60% stocks & 40% bonds) the best annual compound returns over the past 160 years?

                        It’s a virtual tie! See the chart below with Republican Presidents on the left and Democrat Presidents on the right.

                        Graph showing the 60/40 portfolios' annual compound return featured in the Lorenz November 2022 newsletter.

                        Obviously, Presidents—both liberal and conservative—have had very little influence over the stock market’s long-term results.