Attempting to forecast economic conditions a year in advance can leave people wondering what "they" were thinking come December. It's part reflection, fact-finding, interpretation, intuition, and luck. I add "luck" because no matter how hard you may try, there are just some things you can't control or predict. No matter the message, stay positive, be prudent, and you will prosper in the long run.
Much of this may not be news, but it'll all play a role in the year ahead. Inflation is higher than it has been since the early 80s. The calendar year 2023 should be better than 2022, but the likelihood of us seeing inflation at 2% per year isn't a realistic expectation. But if inflation doesn't bother you, interest rates will. The Fed's drive to increase rates to curb inflation will more than likely put downward pressure on real estate and equity markets.
The good news is that with higher rates come higher yields. This year may be the year for real income from bonds. You may have already noticed the interest on your money market accounts, and the general consensus is that bonds will not repeat their disappointing performance.
The trend of growth stock domination turned in 2022, and market leadership has broadened. Manufacturing is meaningful again. If you're someone that likes companies that pay dividends, 2023 is shaping up to be the year for you. Higher interest rates and a need to "make things" again will provide an agreeable environment for high-quality companies with solid dividend-paying histories.
Personally, I'm worn out with stories of "supply chain issues." I have supply chain fatigue. The good news is that companies are changing how they deal with Globalization, with diverse industries now looking for supply chain redundancies. The diversification of sourcing products will encourage capital spending. Another reason to look at companies that "make things."
Recessions, on average, last about ten months (2-18), and as of the writing of this piece, how this one may land is still up in the air. It may end up being very mild or result in a painful and protracted decline in economic activity. One of the more important things investors should remember is that the markets are Leading indicators. This fact means that stocks tend to hit bottom before the worse economic news is released.
Equities are forward-looking and usually begin to climb before the end of a recession. The moral of the story is, "Don't watch the news!" Have a long-term perspective and a plan for your finances. A well-thought-out plan can help you weather the storm and seize opportunities.
Our team is always here to support you with any questions or concerns you may have this year. Feel free to contact us if you'd like to review any of your accounts or are interested in scheduling a meeting to begin your financial planning!
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.