A month into 2023
What will move markets in 2023?
2022 was macroeconomic mayhem, with inflation, the Fed, and the Russian invasion of Ukraine affecting markets and volatility for the entire year. 2022 saw market declines that were only seen a few times in history and the question always becomes, "Will it get worse?" There is no clear answer, but using history, statistics, and reasoning we can make predictions about what is to come.
To start, the good news is since 1957, the stock market has increased 15% the following year on average following a 20% or more plunge. The only problem with this is the sample size, which is only 7 times since 1957. We most likely will not see all time highs in 2023, but it is important to note that after the tech bubble burst in late 2000, it took the market 8 years to recover to an all time high, which was then followed by the financial crisis of '08-'09, which then took another 6 years to recover. The good news is, if you have time, there is no bad time to invest, as the market always finds its way back up, but it may take time. We are in a similar situation to 2000, with much of the S&P weighted in tech, which took a huge dive in 2022.
In 2023, we will most likely see less volatility on inflation news, and way more volatility with news about economic growth, wages, and unemployment. The Fed will continue to be in the news, with everyone's eyes on when rate hikes will stop, and eventually begin to decrease. Some analysts see no decreases in 2023, which makes it really hard for many businesses in the United States to survive. From 2010-2021 many businesses were formed due to easy money policy making it so easy to raise money and start a business. These businesses will have trouble surviving through high rates, as they have never been in this situation before. On the flip side, if as an investor you can find those companies that will survive, you can make a lot of money. Important things to look out for are companies with little debt, positive free cash flow, and recession-proof business models.
An alarming statistic is that the savings rate in the United States has dropped to 2.2%, the lowest ever. Last time it was this low was 2007, right before the financial crisis. What this means is that consumer spending will fall, which decreases growth, which hurts companies, which causes companies to lay off employees, and then that in turn makes consumer spending fall more. If we see this, the only way out of it would be a recession, followed by the Fed lowering rates once again. Something to take away from this is macroeconomic cycles are getting much shorter, with much higher extremities on both sides, what this will do to the global markets is unknown, but something to look out for.
