Happy New year! I hope that your holidays were great and that 2023 is off to a great start for you. I just caught myself signing a document “2022,” so I think it’s going to take me a while to get used to the change.
There’s not much sense in looking back on 2022; it was not great for investors. Broadly speaking, both stocks and bonds were down, which is a rarity. And outside of the oil and gas sector, all the other stock sectors were down. There was almost no place to hide.
As I have written, economic signals have been mixed, with some signs of strength and some signs of weakness. To add to the confusion, good news is often punished with stock market declines, and bad news is rewarded with gains. Right now, stocks are looking at economic strength as a reason that the Federal Reserve might continue to raise short-term interest rates to beat down inflation. Such hikes would be viewed as a disincentive to stock ownership, as high short-term rates could encourage people to save money in CDs or bonds rather than invest in stocks. As a result, stock prices fall. Conversely, bad news, economically speaking, could signal that the Fed is done with interest rate hikes, making stocks seem more attractive. Unfortunately, we’re in a part of the cycle where good news for the economy might mean bad news for stock investors.
As the economy eventually slows due to the Fed rate hikes, I suspect we’ll hear more talk about a recession, or at the very least, a slowly growing economy. I heard an analyst the other day call it a “slowcession,” which is a term I’m borrowing. As this happens, I think it raises the potential for the stock market to continue its downward slide, and it could make longer-term bonds attractive investments. After such a bad 2022, bonds are set up to be key contributors to positive portfolio performance in 2023.
There are reasons for optimism, and out of that will come a new bull market, which I expect to start later in the year. Looking ahead for those green shoots, China seems ready to reopen its economy, and US-China tensions have eased recently. A balanced Congress will prevent much legislation from getting passed, which I think is preferable for stocks. Inflation has likely peaked, and while prices will keep moving higher, at least it won’t be at the 8% rates that had plagued us in 2022. There seems to be a desire for responsible immigration policy reform which may help to ease labor shortages. Importantly, the fundamentals of the economy and of corporate and personal balance sheets look healthy. I think that would prevent the crash we had in 2008. If we do have a recession, I’d expect that it will be a slow-moving wave that rolls through different industries and geographies rather than the tsunami that hit us in 2008. For those reasons, we don’t want to be out of stocks altogether, but to be preparing ourselves for that eventual bull market.
There are a couple of market closures coming up, Martin Luther King Jr. Day on January 16 and Presidents Day on February 20. If you make estimated tax payments, January 18 is your deadline. If you turn 65 this year, don’t forget to enroll in Medicare, as penalties apply for failing to do so.
1099’s will be mailed beginning in mid-February. As always, amended and delayed 1099’s may be mailed as late as March 15. So, while you might not be able to file until you get those, we recommend using the next couple of months to prepare all of your other tax paperwork. You have until April 15 to make IRA contributions for 2022.
If you have questions about these or other financial matters, please don’t hesitate to call your advisor. If you know someone else who would benefit from any of this information, please don’t hesitate to share it with them. Or, you can ask us to reach out to them if that is more comfortable.
As always, these opinions are mine, and may or may not be the same as those of Raymond James. This is not a solicitation to invest, although we do invite you to review your portfolio with us to see if any changes should be made.
Past performance may not be indicative of future results. There is no assurance any of the trends mentioned will continue or forecasts will occur. Investing involves risk including the possible loss of capital. Asset allocation and diversification do not guarantee a profit nor protect against loss. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise.