The last several years have been undeniably rocky, from political turmoil to navigating a global pandemic and its subsequent ramifications. Predictions for 2023 show we’re not quite out of the woods just yet.
Here’s what to expect in 2023 and how to stay prepared to weather the turbulence ahead.
2023 Market Outlook
In December 2022, the Federal Reserve increased the interest rate to 4.25–4.50%. That’s the highest it’s been in 15 years and the seventh sequential rate hike we saw in 2022.
The positive side of these increased rates is that the U.S. economy is starting to see more price stability, which is ultimately bringing inflation down. A recent report from the Consumer Price Index indicates that the inflation rate is trending down from 7.7% to 7.1%.
The Fed was fairly predictable in 2022, but 2023 is looking uncertain. Jerome Powell, the Fed Chair, insinuated that rates would likely remain elevated but at a slower pace. So, although rates aren’t going to rise as quickly over the first half of 2023, they may not drop either.
What This Means for Employment
Unemployment rates are lower now than they have been in years, especially considering the fallout from the pandemic. Unfortunately, experts predict slowdowns in hiring for the 2023 job market.
Economists, in conjunction with the Fed’s quarterly projections for the U.S. economy, predict an unemployment rate of 4.6% in 2023, up from the 3.7% we saw in November 2022.
What This Means for the Stock Market
It’s too early at this point to predict the effects the economy will have on stock market performance. At this time, it appears it’s a mixed bag — there are too many external events going on that influence the economy and therefore the stock market.
How to Be Prepared for Rocky Markets in 2023
Although it seems as though the US is likely to avoid a recession in 2023, Europe’s economy is far less stable.
Any instability in the global market makes picking stocks a potentially treacherous activity. Here are some ways to prepare yourself for investing in 2023.
Focus on the Long Game
It’s no secret that investing is, in many ways, a long game. And that’s exactly how you should play it in 2023. Focusing on the long-term horizon when investing in 2023 will help you mitigate unnecessary risk.
Take a Defensive Stance
It’s likely that negative events in both the U.S. and global economies will negatively affect the market by lowering stocks. You should take a defensive stance in your portfolio to handle these risks.
Annuities for Protection
With traditional asset allocation, you divide your investments and retirement contributions among various bonds and stocks according to your risk appetite, investment goals, and retirement timeline.
An alternative to this approach is using money to buy annuities rather than stocks or bonds.
Annuities offer valuable protection for your portfolio as well. They provide a security blanket of sorts to help keep you from running out of money during market lows. If your annuities are immediate, you can secure that income right away.
Keep Calm and Focus on Long-Term Growth
Regardless of the state of the economy or stock market, it’s important to stay focused on sound strategies and avoid emotional (or financial) panic. Investing is a game of patience, and occasional losses are the cost of playing.
