Finding the Market Theme in 2023
The worst might be behind us. An even better way to look at the market lately is to believe that there’s an enormous opportunity ahead of us!
The scale of last year’s market correction was breathtaking to many investors. An area hit hard was the traditionally conservative asset class of bonds because as interest rates increase, bond prices fall as a matter of mechanics. The Agg Bond index “AGG” was down 14% last year. Tech stocks that have made a killing for investors over the last decade have now seen the other side of that, as the tech-heavy index “QQQ” was down more than 30% last year. Dynamite places for investors last year were in energy stocks, including Big Oil (which profited $200B last year) and utilities, which are quasi-government-backed stocks spinning off a healthy dividend for investors. Defense, chips, and other supply-threatened asset classes also held up their own last year.
Now arrives the opportunity to take a look at your portfolio and research potential supply inequities that could drive stock prices higher in the future. Notably, much of this thinking will revolve around the Ukraine-Russia war and related geopolitical effects that it will have on defense and energy stocks, commodities (including agriculture), healthcare, and related innovation technology; not too surprising: more of the same this year as it was last year.
A market catastrophe was averted in a large part last year. The dollar has since weakened from strength not seen in a decade, inflation has cooled thanks to tech lay-offs and Fed tightening of interest rates. Moderation of volatility expectations plus a “normalization” of supply chains that were broken during the pandemic make for a potentially great recovery of markets going forward. The Fed has also relaxed its tightening mandate, meaning they won’t raise rates as high and fast as before, and some even suggest a lowering of rates in the next few years. Morgan Stanely sees the potential for bond rates to lower, which could be a boom for bonds in 2023: “We see the 10 year Treasury yield ending the year near 3%, and the 2 year yield ending the year near 3.25%. That would represent a fairly dramatic steepening of the Treasury yield curve in 2023” ^1 Note that this is a fall from 3.74 and 4.62%, respectivally.^2
Despite the continuous cycle of depressing headline news and the deepening of this unconscionable war in Ukraine, investors’ mandate should be to never stop doing whatever is necessary to maintain purchasing power over inflation so that financial security and retirement goals remain intact.
At Eureka Wealth Management, I help clients make financial decisions that are in line with their retirement goals and overall investment philosophy. I also do net worth & cash flow analysis, tax/estate strategies, and insurance. Call for a free, initial consultation at (760) 537-0791 or online at eurekawealthmanagement.com.