If you’re wondering how the economic issues of 2022 will take shape in 2023, you’re not alone. Forecasters everywhere have released their predictions for what this new year has in store. But how does all of this impact your personal finances?
Here, we take a closer look at the biggest factors you need to know.
Questions of a Soft Landing
Over the last year, the Fed has been aggressively raising interest rates in an effort to decelerate broad-based inflation. As a result, economic growth is projected to slow, and many forecasters, such as those at the Conference Board, predict that this will tip us into a recession. However, even if we were to enter a recession, it may be a mild one if inflation begins to flatten or lower. There’s also a chance that we could avoid a recession completely with a “soft landing.” Though rare and challenging to execute, experts believe that a soft landing could be in our sights this year.
Labor Market Predictions
The labor market took a big hit in 2020 as the COVID-19 pandemic spread across the world. In 2021 and 2022, despite slowing economic activity, the job market remained resilient, with the current 3.5 percent unemployment rate sitting near historic lows. This year, among fears of an impending recession, the outlook isn’t so promising. As the Fed’s tightening moves through the economy, unemployment rates may rise. J.P. Morgan, for example, expects unemployment to rise to about 4.3 percent in 2023.
Additionally, employers are facing challenges that carried over from 2022. While the Great Resignation seems to be slowing, many sectors still struggle with labor shortages. In fact, nearly half of workers plan to find new jobs in 2023. This is largely a result of the cost of living crisis, which continues to outpace last year’s slight uptick in average wages.
Geopolitical Unrest
Global events, particularly Russia’s invasion of Ukraine, have had a ripple effect across the global economy. The restriction of Russian natural gas supplies has led to an energy crisis across Europe and pushed many countries near a recession, which may have serious implications for Europe’s trading partners. And while the impact on the U.S. economy has been marginal, predictions on the conflict’s future remain unclear. Tensions may cool, but there’s an equally likely chance that the war could escalate and generate more direct damage.
What Does This Mean for You and Your Money?
Here’s what 2023 may have in store for your investments.
Stocks
2022 was a tough year for the U.S. stock market, with the three major indexes suffering from their biggest losses since the 2008 recession. There are hopes that the Fed will cut interest rates in 2023, but if they don’t, growth stocks may continue to suffer as they did last year. Value stocks, on the other hand, have performed relatively well, and they may continue to outperform growth stocks.
Bonds
Despite a brutal 2022, bond investors may see their outlook turn around in 2023. According to a Goldman Sachs report, bond yields experienced a sharp increase during the course of 2022, and the yield gap between bonds and stocks is now relatively low. Compared to low-risk bonds, investors aren’t seeing the pay-off normally associated with higher-risk asset classes. While strong returns aren’t guaranteed, increased interest rates may continue to make bonds a smart way to support your portfolio.
Alternative investments
There’s never a bad time to diversify your portfolio, but 2023 shows particular promise for investors that allocate to alternative investment types. With little correlation between traditional asset classes, like stocks and bonds, alternative classes may help investors protect against high inflation and market volatility and potentially lead to more returns than traditional assets alone.
What’s Next?
At the end of the day, there are a number of different paths the economy could take. No one can say whether we’ll enter a recession and, if we do, how serious it will be. All we can do is prepare by taking smart steps to protect our finances, such as diversifying, rebalancing, and maintaining a long-term mindset during turbulent times like these.
Want to know more about how 2023 could impact your wealth management? We’re here to answer your questions and help you develop a reliable financial plan. Reach out today to learn more.
