Key Takeaways for Savvy Investors
Plenty of risks remain as we kick off 2023 and volatility is likely over the next few months. However, there are some potential bright spots ahead as well.
Interestingly, in the last 70 years, the U.S. hasn't entered a recession during year 3 of the 4-year Presidential election cycle.8 Moreover, year 3 tends to have the strongest market performance over those 4 years, with year 2 (last year) being the lowest.9 I think 2022 met that bar!
Inflation has likely peaked.5 The uncertainty of an election year is behind us. Equity valuations have dipped significantly from their highs.3
Does that mean that markets aren’t going to fall further? That’s crystal ball territory.
While history teaches that inflation peaks often coincide with market bottoms, we still have a potential recession to contend with.6
However, a change in the Fed’s position toward interest rates or signs of a strong economy could definitely reward us with rallies.
Let’s talk about those recession fears.
The odds favor a recession this year. Historically, inflation rates above 5% mean the probability of recession spikes, especially when paired with a low unemployment rate.7
All that said, probabilities are not certainties. The economy could avoid a recession; if one comes, it could be shallow and short. U.S. consumers still look healthy and the job market is still robust.2
If I were to assign the first few months of 2023 a motto, I’d say: “Be flexible.” Let’s look for opportunities hiding in the uncertainty.
The tactical approach we utilize "tilts" to relatively stronger parts of the market. Right now that includes value stocks, commodities and precious metals, U.S. Treasury floating rate bonds and--for the first time in nearly 2 years--foreign stocks.
Questions? Please reach out. I’d be happy to chat.