Did you know that 94% of the S&P 500's losses for this year took place over just five trading days. A new report from DataTrek Research found that the index endured most of its 20% annual loss across a small handful of sessions. Usually, the declines happened around spiking inflation concerns, big corporate earnings misses, and reactions to Fed interest rate hikes. The largest dip happened on September 13th, when the August inflation report came in hotter than expected. That pushed the S&P 500 to finish 4.3% lower. Right now, we are currently at the most 'entrenched' and persistent level of bearish sentiment in the AAII survey's history. More negative than the 2002 tech bubble and the 2008 Great Financial Crisis. I certainly wouldn't say investors are misguided to feel downbeat. Inflation brought serious pain this year, the beloved FAANG stocks were hammered, and recession fears remain top of mind. However, investors are more focused on the shocks that are now 'realized' (in the past) and less on how things can change. We think the key to 2023 will be to focus on the latter (how things can change) rather than the former (what has been realized). In other words, overly bearish sentiment suggests stocks could be setting up for a decent recovery in 2023. In any event, we remain nimble and ready to position for whatever 2023 brings our way. Happy New Year. We need it!

Should you have any questions or concerns, please feel free to reach out.

Portfolio Notes

(+) indicates a positive development, (-) indicates negative, and (~) indicates neutral

(+) Apple (AAPL-US) Evercore ISI designated Apple as a top pick for 2023 because it sees the tech giant sustaining growth in a tricky economy next year. They called iPhone manufacturing headwinds in China “transitory,” and they’re more focused on long-term growth opportunities in its services and wearables operations. Analysts described growth outlooks in these segments as “robust” and expect them to drive revenue growth and margin expansion. I see Apple’s supply chain problems in China as temporary. The demand destruction for Apple products will be minimal due to its high loyalty and customer satisfaction rates. While Apple isn’t immune to risks in an economic slowdown, it has abundant room for growth well into the future. My only worry is the love afforded Apple in ESG rankings. Some light is being shined on cobalt and lithium mining practices and it may spark investigations. What if Apple is forced to rejigger its battery supply chain and gets removed from the top of ESG rankings. Owned in Core and US Portfolios.

(+) Amazon (AMZN-US) is Citi’s top pick across the broader Internet sector in 2023. Citi said while Amazon’s retail business is under pressure in a slower economy, it believes the e-commerce giant can “gain wallet share during uncertain times.” The company continues to take market share in total retail spending, a trend that will be in Amazon’s favour because it already holds a “dominant share position in U.S. e-commerce.” Owned in US and Opportunity Portfolios.

(+) Estee Lauder (EL-US ) is a top stock to own in 2023, according to JPMorgan. Analysts said the cosmetics giant’s long-term underlying fundamentals are stable, and once the near-term China headwinds decrease, EL stock can perform better. I see long-term growth tailwinds for Estee Lauder in the region since it’s one of the world’s top global beauty companies. China accounts for more than one third of the company’s sales, so once China fully re-opens we can expect high demand. It sells products under the following brand names: Estée Lauder, Clinique, Origins, MAC, Bobbi Brown, La Mer, Jo Malone London, Aveda and Too Face. Owned in US Portfolio.

(+) Microsoft (MSFT-US) is Citi’s top large-cap pick in software under the expectation the tech giant can deliver double-digit percentage growth in calendar year 2023. Microsoft has had a challenging year due to the slower global economy and the strong dollar, but the stock is less risky than its software peers with a reasonable valuation. Owned in Core and US Portfolios.

(+) Starbucks (SBUX-US) William Blair said Starbucks, a brand that ranks No. 1 in market share for coffee, is poised to deliver earnings and sales growth in 2023, thanks to the company’s uninterrupted top-line momentum. During a period of economic uncertainty, Starbucks plans to open new stores across the U.S., which is anticipated to produce 40% revenue growth in the next three years, analysts said. China’s economic reopening can also be a catalyst for the stock. Owned in Core and US Portfolios.

(+) Constellation Brands (STZ-US) UBS has Constellation Brands as a top pick in 2023. They say it can deliver sustainable high single-digit organic revenue growth in beer in the coming years, citing continued innovation of its core brands and improvement despite near-term inflationary pressures. UBS calls STZ “one of the most attractive” names across the beverage universe since it can continue to provide sales growth which UBS said can support earnings-per-share growth. It's growth-oriented beverage portfolio — including Corona and other top Mexican beers — has performed well, as consumer demand has held up. We expect the company to be resilient in a recessionary environment since alcoholic beverages are seen as something people don’t tend to forgo. Owned in Core Portfolio.

Weekend Reading

Why Competitive Advantages Die The only thing harder than gaining a competitive edge is not losing that advantage when you have one. That’s as true for careers and investment strategies as it is for business. And since people are naturally optimistic, there’s a tendency to put more thought into finding an edge than not losing it once you find one. COLLAB FUND

2022 was the year the Overconfidence Man fell back to earth Hopped up on adulation and extolling of once-in-a generation genius, the Overconfidence Man flew too close to the sun this year. And, while in certain ways a male trope, women also joined the overconfidence set. BUSINESS INSIDER

Wall Street Breakfast: What A Year! (PART ONE) The hottest headlines and top stories from this Seeking Alpha newsletter over the past year. WALL STREET BREAKFAST

Wall Street Breakfast: What A Year! (PART TWO) WALL STREET BREAKFAST

Net Zero Isn’t Possible Without Nuclear Unfortunately, outdated regulations are impeding much-needed innovation to fight climate change. Time is running short. BLOOMBERG OPINION

The 10 biggest scientific breakthroughs of 2022 From photos of the infant universe to an energy advancement that could save the planet. THE WEEK

9 Forecasts for The Near Future, With Implications How will work and life change in a material way over the next 3-5 years? As we synthesize the latest tech and trends in culture, what are the implications? SCOTT BELSKY