January 2, 2023, 12:09 am EST
2023 Market Outlook
Two Powers
Two powers continue to be formed in 2023 based on politics, military, economy, and mutual dependence:
- Axis: Russia, China, North Korea, Iran, Saudi Arabia
- Allied: US, Japan, India, Australia, UK
We believe the confrontation between these two forces is going to impact the economic aspects. The gap is likely to get deeper in 2023 so headlight news between these two powers is important to watch.
Market Friendly Fed Reserve
US Fed reserve would play safer cards in terms of rate hike policies. The goal is to keep the economy moving forward smoothly without a recession, Also, maintain inflation at a tolerable level.
But, Fed could also lose the battle on both sides meaning recession and long inflation. We believe it could be the outcome of the US economy for 2023.
Extended Inflation
High inflation in the 5-7% range will hit the US economy. IPOs, technology, consumer products (clothing, cars), and services (restaurants, hotels) are going to suffer in 2023 like in 2022. Extended inflation will drag the US economy into recession, in our opinion.
Weaker Job Markets and Housing Markets
The unemployment rate will not stay at the lowest level of under 4%. We believe it is going to rise with the slowdown economy and extended inflation.
Also, the housing markets will fall with the rising rates.
COVID-19 or COVID-23
COVID-19 or COVID-23 is the big unknown factor. China is going to open up its door both in and out of China with many affected cases from January 8, 2023. Whether available vaccines or treatments are enough to handle is a mystery. We will need to monitor the news carefully.
Strategy
Overall investment strategy should keep in defensive mode. It is likely that the bear markets will continue to hit the stock markets in 2023. The winners are few but the losers are plenty. Avoiding unnecessary trades could be a good idea because most stocks cannot rally.
Potential winners could be in the energy sector. Large caps are preferred to small caps. Also, technology and consumer discretionary could be losers again in 2023.
