Identifying Challenges and Uncovering Opportunities
Whether you’re one to set ambitious New Year’s resolutions or simply use the beginning of the year to reset on a few habits, there’s almost always some value in reflecting on the past year before looking ahead. The same is true for the markets. When we look back on 2022, it’s easy to identify the challenges—but if we look closer, we can also uncover some opportunities.
2022 Market Recap
First, we need to remember what we learned in 2022. The Federal Reserve (Fed) showed us they can and will take swift action to squelch inflation, as demonstrated by the sharp interest rate increases we saw last year. We also saw that severe inflation coupled with the Fed’s interest rate hikes had a larger-than-expected impact on the stock and bond markets.
2023 Brings Renewed Hope
The early weeks of 2023 are looking more promising. Inflation is still high, but falling, the Fed is expected to end rate hikes by the spring, and there are renewed hopes for a softer landing for the U.S. economy; our expectation is that the economy will either narrowly avoid a recession or enter a mild, short-lived recession in early-to-mid 2023.
These factors have allowed investors to begin charting a more positive path forward, which we believe will continue despite some potential choppiness in the market.
Overall, we see reason for renewed optimism when it comes to the markets in 2023. Should the Fed pause rate hikes in the near term as expected, we may see a nice stock market rebound supported by falling inflation, reasonable valuations, and stable interest rates. Further equity market volatility remains a risk, but we believe we’ll see more positive outcomes from the stock and bond markets this year.
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