What to expect from the financial markets in 2023
The past year was tough for the stock market due to rising interest rates, economic worries, the war in Ukraine, and inflation.8 But can investors expect a rally in 2023?
If inflation declines and interest rates remain relatively high, investors might be able to put the worst of market volatility behind them.
When interest rates were close to zero, investors didn't have many alternatives — they could either put their money in stocks or earn next to nothing from cash and bonds.
"Now, the risk-free rate of return on CDs and T-bills within 12 months are paying over 4.5%,"9 says Christopher Brown, Financial Advisor with Synovus Securities, Inc. "Stocks now have to compete with 4%+ risk-free U.S. T-Bills or FDIC-insured CDs. This may provide some hesitation for wealthy investors with large cash positions, who are near or in retirement, to reassess their options and allocation percentages into the stock market. I remain cautiously optimistic for stocks going into 2023."
Will there be a recession in 2023?
The possibility of a recession in 2023 remains up for debate. On the one hand, Goldman Sachs Economic Research predicts that the U.S. will narrowly avoid a recession10 with slowing inflation and a slight increase in the unemployment rate.
Whether a recession happens in 2023 or beyond — and whether it's short and shallow or long and deep — recessions are part of regular economic cycles, and they do eventually pass.
- Define your investment goals and objectives.
"Having a good understanding of your investment goals can provide a framework around what type of investments are appropriate for your long-term financial needs," Brown said.
- Know your time horizon for your investments.
According to Brown, "Time horizon can help define what type of investments you want to own and the volatility you are willing to accept for your long-term investment plans."
- Know your risk tolerance.
"If you don't have the intestinal fortitude to handle the ups and downs of the markets, finding investments with a defined maturity date, buffered downside investment strategies, or principal-protected investments may help you stay invested without realizing the full brunt of a bear market cycle," Brown said.
Ultimately, it is impossible to predict how the economy will fare in 2023 or beyond. But by understanding current economic trends and projections, investors can better understand the key factors that may shape their investment decisions over the coming months and years. Talk to your Synovus financial advisor for help making informed decisions about how you manage your investments and work toward your financial goals.