2022 Was Painful, 2023 Starts with a Bang

2022 Was Painful, 2023 Begins with a Bang!
Feb 21, 2023


Happy New Year!

After suffering the worst year since 2008 and with 2022 thankfully in the rearview mirror, the markets finally appear to have transitioned from panic to relief. Faced with a dizzying pace of interest rate hikes from the Federal Reserve last year, investors raised piles of cash and a risk-off attitude ruled as stocks dove and safe-haven higher-paying money market funds enticed investors to take money off the table. In the first few weeks of the new year, 2023 launched like a rocket, with stock and bond markets notching sizeable gains as losers became winners and investors began flocking back to bonds but also to riskier trades in tech, Meme stocks, crypto and high-growth names.

The Fed Pivots (or did they?)
As I wrote this, the Federal Reserve had just announced that they raised interest rates by another ¼ point (as expected), a much smaller hike than their previous raises, and Chair Powell’s tone seemed to be a bit more nuanced than last time. The positive market reaction to his slightly less aggressive tone was swift, with bonds and stocks rallying sharply, but it seems a bit overly optimistic this early in the tightening cycle. With the lengthy lag times between rising rates and the impact on the economy, investors may be disappointed to see a decelerating economy and smaller corporate profit margins later this year as those higher rates get baked in.

The Good News
On the positive side, inflation finally started easing last month and December’s year over year Core PCE (Personal Consumption Expenditures, the Fed’s favorite inflation gauge) clocked in at 4.4%. This is comfortably below the peak of 5.2% last September. Consumers are still continuing to spend, even though they are being a bit more careful as inflation continues to put a damper on their budgets. And corporate profit margins are still holding up despite inflation in costs and wages. Even though we’ve seen a few high-profile layoffs at larger firms, small businesses on the hunt for talent have been thrilled to snap up those candidates to fill their openings.

Where is the Market Heading?
I’m expecting the stock market to go through another rocky period as we move into Spring and the economy begins to feel the full effects of moving from 0% to rates in the 5% range. But with so many other positive economic fundamentals still at work, we’re not likely to see a steep market drop like we experienced last year. We’ll probably give back some of January and early February’s “too high too fast” gains over the coming weeks, but overall investor sentiment seems to have turned the corner, and the stock market has a good chance 14at ending the year with moderate gains.

Crystal McMahon CERTIFIED FINANCIAL PLANNER™ / CEO 4424 6th Ave, Tacoma WA 98406| 253-858-2427 Ext 2 | greatlifeinvesting.com Financial Planning, Tax and Investment Advisory services provided by Great Life Investing LLC, a Washington Registered Investment Advisor.