13 Feb Weathering the stock market dip and trends for 2023
Weather the stock market dip and come out standing strong with these 2023 trends as guide.
2022 has been a tough year for investors, with the S&P 500 sliding more than 18%. It represents the first double-digit regression since 2008 with a stormy outlook for macro assets erasing almost all gains in the pandemic stock market boom.
As for 2023, there is some positivity with analysts hoping that we may have experienced the worst of the pain. We haven’t seen back-to-back down years since the dot-com bubble burst back in the early 2000s.
To temper expectations; any growth is expected to be modest and at a much slower pace than in previous years. Annual growth normally averages out to be in the 8-9% range, so it is unlikely that we’ll hit this percentage. But following a painful 2022, any move upward would be welcomed.
Hold or fold?
If you zoom out and take a long-term view, these market dips are unfortunate, but are a normal part of market cycles and represent long-term buying opportunities. History has shown that over the long run, investing in stocks is one of the best ways to secure your financial future.
2022 could be seen as a stock market correction. Investors may be tempted to sell in a knee-jerk response, but this may not always be the best move. Instead of selling, investors should look at taking advantage of the market dip by looking for value or setting up other investment options.
This will enable you to diversify your holdings and benefit from the ride-up as the markets recover. Investment planning can help you decide how to structure your portfolio, to get the right mix based on your risk appetite and personal goals.
It is important to remember that the stock market will always go through cycles of rise and fall, but over time it has consistently provided returns. The key is to manage risks, whilst making sure you don’t miss out on any opportunities during less volatile times. This will help you be properly prepared to weather any market volatility more easily.
The best advice is to focus on long-term investing, stay diversified and hold off on making any big moves until you have a good grasp of market trends. With the right advice and planning, 2023 could prove to be an opportunity for investors. Speaking to financial advisors will help accelerate your understanding of the wider market dynamics and help you piece together a more accurate stock market forecast.
What trends can we expect to see in 2023?
The stock market is expected to continue its recent recovery following the dip in 2022, but at a slower pace. Analysts are expecting some growth, but this could come with more volatility due to uncertain political and economic conditions globally.
Macro-conditions remain clouded, and this might mean that markets don’t reach pre-dip levels anytime soon. Inflation continues to rise and could continue to do so with the economics decisions of the US Federal Reserve System (Fed) impacting global markets. At the start of the pandemic, rates were lowered to zero and cash was injected into the economy via stimulus checks to individuals with the aim of boosting the economy throughout the crisis. This coupled with quantitative easing in the last 10-12 years has created a situation where inflation was inevitable.
As a result, inflation had crept up to 7.7% as of October 2022. This, coupled with the rise in interest rates, will continue to put pressure on stocks and other markets. Higher rates mean an increased cost of capital, which leads to less borrowing and reduced spending by both companies and individuals. Previous periods of similar economic instability have led to economic slowdowns at the very least, or even recession. The question of whether we’ll see a recession in 2023 though, is probably a little too early to call.
On top of this, the energy crisis in Europe is still something that is playing out with the full effects of winter energy costs not yet felt in the market. This could lead to more market uncertainty as the year progresses and slow down recovery in general. A silver lining is that companies in this sector are the only sector to have out-performed predictions in 2022, not that this offsets the overall drop in the markets and the correlated dip in investor portfolios.
Technology companies have struggled in 2022 with large scale redundancies across many of the tech titans and unicorns. Some analysts say that the reduction in stock price seems to be a market correction to bring the share price more in line with the perceived market value. But shares that were seen to be safe bets during the pandemic have performed particularly badly. Whether they can recover is still unclear, but the redundancies and quarterly earnings reports are cause for concern.
What about sectors or industries that might deserve particular attention in 2023?
Despite recent layoffs, the technology sector continues to innovate and invest in Web 3.0 technology initiatives as companies strive to offer more engaging experiences to users. The way we work, play and socialise continues to evolve rapidly, particularly with the advancement of AI. The technology sector is not an area that should be ignored.
We can also expect to see more ESG (Environmental, Social & Governance) investments as investors become increasingly conscious of the importance of sustainable returns. This trend is set to continue in 2023 as more institutional investors seek to align their portfolios with values-based investing.
One more thing that might deserve your attention in the next year is crypto. But, be careful because it might be all for the wrong reasons. We can’t deny the rise in cryptocurrency and blockchain technology, however, it also entails a depressing fall more often than most people know. If you’re interested on boarding the crypto train, make sure to do a thorough research first as it still is one of the most unstable investment options out there. There are a lot of uncertainties in the stock market, but one with solid foundation can give you better long-term gains.
Overall, it continues to be a risky space, due to a lack of proper regulation, KYC and a large number of hacks or nefarious actors calling into question the legitimacy of the industry. The recent collapse of several large investment arms, lending platforms as well as a centralised exchange puts governments and regulators in a very awkward position. Something they will no doubt attempt to address in 2023.
So, what does this all mean for investors? We can be slightly more optimistic for 2023 considering the developments of the past year, but there are still many factors that could have a significant impact on markets.
The Fed’s decisions with regard to interest rates and inflation will be key in determining what direction markets take. You should try to stay informed and keep a close eye on the markets. We are seeing signs of recovery, but the situation needs to be closely monitored in the coming months. Also, don’t panic if stocks take a dive – remember that these things tend to go in cycles. Instead look for opportunities and try to find value in the market. There will still be opportunities to be had in certain sectors and industries, but it’s important to do your research before investing.
Eight Wealth International is always on hand to offer unbiased financial advice based on your personal circumstances. Market volatility can be stressful, but it can provide opportunities to prosper and reorganise with the right approach.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
© S&P Dow Jones LLC 2021. All rights reserved.