Ask the Rational Investor: Checking the 2023 Market Outlook
Over the last several months the U.S. stock market has recouped about half of 2022’s decline—begging the question if the worst is over, or if investors should brace themselves for more stock market volatility in 2023.
Stock market prices change based on investors' expectations of the future. During booms and busts, emotions tend to have a greater impact on investor expectations and can lead to more risk or reward for investors willing to be contrarians.
Most of the decline in the market in 2022 has been due to valuation compression as interest rates increased. With inflation and interest rates close to their peaks this should provide some support for valuations in 2023.
Weaker company fundamentals of eroding profit margins, sluggish sales growth, and negative to zero profit growth will likely weigh on the stock market. How investors perceive these changes depends on if the U.S. and world economies fall into a mild or deeper recession.
Given all the data today it is most likely that the stock market treads water and remains volatile, as investors digest declining inflation, weakening economic growth, and geopolitical issues.
Changes in portfolios at year-end should look to capture tax losses, which could be helpful in off-setting gains in larger more growth-oriented companies. Predictable business models with management teams that focus on increasing their dividends and buying back stock will likely do better in 2023 given growth concerns.
The energy sector up until 2022 had been under pressure as green energy and an increasing focus by investors on ESG weighed on stock prices. Energy stocks have outperformed considerably and will likely continue to do well in 2023 with large and growing dividends and share repurchases.
Before making any changes in your portfolio consult with your portfolio manager to determine the appropriateness for your situation.
Beese Fulmer Private Wealth Management was founded in 1980 and is one of Stark County’s oldest and largest investment management firms. The company serves high-net-worth individuals, families, and non-profits, and has been ranked as one of the largest money managers in Northeast Ohio.