Posted on 01/04/2023 7:28:19 AM PST by SeekAndFind
2022 was an incredible year, riddled with “unprecedented” moments… And for most investors, it was likely in a bad way.
Naturally, investors want to know what to expect in 2023.
Here at Intelligent Income Daily, our goal is to introduce you to the best income-producing opportunities in the market. The kind that will reliably generate income through all kinds of economic conditions.
So today, I’m going to bring in my number-crunching analyst Adam Galas. He’ll walk us through the four most important things to pay attention to and what it’ll mean for your portfolio.
We also have an exciting project we’re working on for next year that can help you prepare for 2023. So read on about it all below…
There are four economic indicators everyone will be looking at in 2023. Based on the various sources and research I do day in and day out, here’s what the experts and data suggest we’ll see in the year ahead for:
Inflation peaked at 9.1% in June 2022 and has been falling for five consecutive months.
Economists and the Cleveland Fed expect it to fall next year by about 0.1% per month. That’s because they believe most of the supply chain issues the pandemic caused have now been fixed.
Housing costs, which peaked in mid-2022, are finally starting to show up in official inflation reports, and wage growth is also starting to cool.
Inflation of goods has turned negative, and shipping costs are down 80% off their pandemic record highs.
And don’t forget that inflation measures how much prices change yearly. After a year of 8% inflation in 2022, it’s bound to fall, barring another year of extreme surges in commodity prices.
Interest rate hikes are another thing to look out for next year.
The bond market – which is often called “the smart money” because of its accuracy in predicting future economic conditions – is now expecting the Fed to:
The good news? 5% is a lot better than the 7% some Fed presidents previously said they might have to hike to.
The bad news? It would still be the highest short-term interest rate in 20 years, which means slow growth for the U.S. economy.
With this in mind, the bond market is also confident of one other thing we’ll see in 2023…
A recession is so certain, the probability for one in 2023 is at 170%. Meaning it’s predicting a 100% chance of a recession starting much earlier than the end of next year.
Based on 18 economic indicators I track and current economic conditions, we could see a recession begin between February and April 2023. This is consistent with what the economist teams at financial services firm UBS and Goldman Sachs expect.
But here’s the good news. This recession is likely to be much milder than others we’ve seen in previous years.
Here’s what some of the experts at leading financial institutions are predicting in 2023:
For context, the mildest recession in U.S. history was a 0.3% decline in 2001. This means 2023’s recession is likely to be mild or average at worst.
Unemployment is expected to rise from a 53-year low of 3.5% to 4.5% to 6%. But before you get alarmed, it’s important to note:
In other words, even with a recession all but certain next year, unemployment is only expected to rise to historically average levels.
70% of the U.S. economy is driven by consumer spending, and almost all consumer spending is driven by wage income. If people have jobs and their wages are not falling, consumers will keep spending.
With consumers not expected to lose many jobs (about 1.5 million to 3.8 million total job losses) and wage growth expected to be moderate (around 3.5%), we expect to see spending continue even in the 2023 recession.
So what does all this mean for the U.S. stock market in 2023?
2023 is likely to be a very different year from 2022. After we reach a mild recession, inflation should fall steadily. And the Fed is estimated to hike just 0.75% and pause rate hikes in March.
Bond yields, which soared by 4.5% in 2022, are expected to peak and fall steadily by February. That aligns with historical averages, where bond yields start falling a month before the last Fed rate hike.
However, given that this is the most anticipated recession in U.S. history, bond yields might have already peaked.
What could this mean for your portfolio? Great news. Finance giants HSBC and Nomura both expect 10-year bond yields to fall about 2% from recent peaks, to around 2.3% in 2023.
And thanks to their inverse relation with stock, that means a potentially strong tailwind for stocks in the second half of 2023.
But that doesn’t mean all of 2023 is going to be market heaven for investors…
The average recessionary earnings decline since World War II is 13%. Assuming that holds true for the 2023 recession, stocks are currently trading at 21X earnings, the same valuation they started the year at.
This is why analysts at Morgan Stanley, Goldman Sachs, and UBS are predicting the 2023 S&P 500 to bottom around 3,000 to 3,400, a 16% to 28% further decline. And most expect to see that happen in the first half of the year.
In other words, based on the economic data we’re facing now, stocks likely haven’t bottomed yet. And the final plunge could feel terrifying for many…
Now, our job is not to time the markets.
But historical data from 1950 to today shows you don’t have to nail the bottom. You can still earn an average 12-month return of 22%, an average three-year return of 37%, or an average 10-year gain of 214% after a market decline of 25% or more.
And the best way to lock in those gains is by owning blue-chip dividend paying stocks today. And picking them up at bargain prices when the opportunity presents itself.
We might be in for a rough start to 2023, but based on the data I cover, we could see a brand-new bull market start to unfold in the second half of the year.
So don’t let fear of some epic stock-market mega crash keep you out of the best blue-chip buying opportunities in years.
And keep an eye on your inbox in the coming weeks. Brad and I are working on an exciting new project that is specifically designed to help you earn income safely through all the volatility we might see in 2023.
We look forward to sharing it with you soon…
Safe investing,
Thanks, Brandon.
With the S&P 500 down 20% from its ATH a year ago (Jan 3, 2022), I'm sure it's tempted to buy back in. But I believe it's got at least 20% more to drop if it follows the other long time drops in our lifetime (49% decline in 2000 took 2 and a half years to bottom, the 56% decline in 2008 took 1 and a half years). This drop took 9 months to go down 20% from its ATH from January 2022 to October 2022. IMHO that makes it unlike the quick 30% drops in 1987 and 2020 that took only a few months then rocketed back up.
Gold up another $16 this morning.
I agree in general with this take. The Bond Market calls the shots, the FED reacts. Imagine the FED as a rancher trying to get a bull into a pen. He can’t really take on the bull, he just tries to get it headed in right direction and hope it goes into the pen.
I’ve been 5 recessions and every one was the End of the World, especially 2008.
Then they ended and the next boom began. It’s all about riding the waves. It is a much better system than central planning.
On a related note, Cramer came out against Crypto, so that is likely to come back. LOL
2023 or 2024. Good post.
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