As 2022 Comes To A Close, 2023 Emerges In Lingering Uncertainty
As far as the economy is concerned, 2022 was not a very kind year. Both the 1st and 2nd quarter GDP were negative, and as of writing today, the S&P 500 is down just over 17%. Economically speaking, that is a terrible year. Inflation persists, forcing the Fed to continually raise interest rates in a flailing attempt to control it. As these problems linger in our economy, concern grows that these problems we faced in 2022 won’t end when the clock strikes 12:00 on News Years. In fact, some believe it actually might get worse.
Historically speaking, there hasn’t been back-to-back years of negative S&P 500 returns since the dot.com bubble in the early 2000s. Every year that the market went red, the next year it went green. The past 20 years, in fact, there have been lots of green years in the stock market. It would seem as though history would be on the side of 2023 being a positive one for the stock market. However, pessimism has taken hold economists and financial institutions alike, including the nation’s largest money managing firm, Blackrock.
Just because Blackrock is expecting a recession does not mean it will happen. We’ve seen that predictions, especially when it comes to investing, are more often wrong than they are right. And the ones who are right, are sometimes after the fact. What comes as a bit of a warning sign is the number of institutions that are bracing for a recession. The Bank of England has discussed their internal worry of a recession in England, as has Japan and New Zealand. What happens globally will indirectly and directly affect the United States economy and vice versa in what can potentially become a vicious cycle downwards.
As troubling as this news may seem, it far from indicates the certainty of a recession. What it does reveal is that there is a chance, unlike the previous 20 years, where we might not see a large rebound in the stock market. That does not mean we will not see a rebound. What this news does indicate is the need for caution that applied to all of 2022 will definitely need to be applied to 2023. Although the outlook for 2023 is looking a bit dim at present, it is key to remember that the stock market is always unpredictable, which is what makes it most fascinating. This unpredictability can be negative, and sometimes, it can be positive. The question is which we’ll see come 2023. Lots of questions. We will see what gets answered.
In the meantime, keeping your focus on income-based portfolios, such as the investment philosophy we prefer here at Emergent Financial Services, can ensure that regardless of the state of the economy or stock market, portfolios are seeing consistent cash flows and snatching opportunities even in the most dire of circumstances. The power of research may not make greens out of red years, especially ones so terrible as 2022, but they can at least cushion the impact.
