As we approach the end of 2022, I wanted to share some thoughts on what we expect in 2023. We know that this past year has not been the year any of us would have wished for market-wise. Unfortunately, we are not ready to call for a major recovery just yet.
Overview
Since early this year, we have been optimistic that we will have a 4th Quarter rally after the elections. So far, that has been the case, but we still have three weeks to go. We still believe the most likely scenario is a mild recession next year as the Fed continues to aggressively raise interest rates with the goal of slowing the economy and reigning in inflation. Although the Fed’s aim is to create a “soft landing” with the economy, its track record is less than stellar when being this aggressive.
While the market is already anticipating a recession in 2023, we do not believe the economic downturn is completely priced in. In order to address this likelihood, we are actively reducing risk in most portfolios while leaving plenty of upside potential should we be incorrect or premature.
Contrary to 2022, we believe bonds have a good chance of rallying in 2023. We believe the Fed is most likely to cease raising interest rates in the first half of 2023 as inflation recedes. In fact, it’s quite possible the Fed could start reducing rates before the end of that calendar year.
We believe the equities’ year will be dependent on the timing of the recession. Should we enter a mild recession during the first half of the year, stocks would likely bottom out early and then have a good chance to recover well by the end of the year. Should the recession commence later in the year we would look for good buying opportunities and a recovery in 2024.
Concluding Thoughts
All of this being said, we are not advocating a market-timing strategy. We do recommend tactically increasing or decreasing risk exposure as we see the odds of volatility change, which we are doing. We continue to favor high quality domestic stocks with good free cash flow, companies that can withstand macroeconomic stress. We are constantly monitoring our fixed income duration, and we will continue to make adjustments as needed. Rest assured, we have a plan.
Provista Wealth Advisors in Greenville, SC, provides peace of mind through personalized asset management, expert estate planning, and retirement planning. Navigate your financial journey with confidence. Rest Assured, We Have A Plan. Give us a call at (864) 696-2410 or send us a message to schedule your free introduction meeting.