Podcast | Season 1 | Episode 62

The Description 

2023 market outlook
Are we heading for a recession? If so, what does that mean for my investment portfolio? When can we expect the interest rates to level off? How does this impact my investments?

 Host: Scott Marks, CFP®, CRPC® | Financial Advisor
For nearly a decade, Scott has guided his clients in planning for important life events, establishing legacies for future generations, and achieving financial independence. Through individualized financial planning, Scott and his team focus on serving the needs of high-net-worth families with a focus on retirement and legacy planning. Scott has a passion for improving the financial lives of those he serves and prides himself on being accessible, relatable, and transparent.

Scott graduated from Arizona State University with a degree in Supply Chain Management in 2010.  Drawn to the world of finance, he began work as a credit analyst in the commercial lending department with Alliance Bank of Arizona.  

After four years with the bank, Scott pursued a career as a financial advisor with Merrill Edge. During his time there, Scott provided investment guidance and built effective long-term financial plans for clients around the country.  

In August of 2016, Scott joined Summit Wealth Group to provide more holistic wealth management and planning solutions for his clients.  Scott is a Certified Financial Planner (CFP®), a Chartered Retirement Planning Counselor (CRPC®), and a registered representative with Commonwealth Financial Network® (a registered broker/dealer, member FINRA/SIPC). 

Scott lives with his wife Alysa, in Cave Creek, AZ.  In his free time, he enjoys golfing, coaching his son Redford’s baseball team, and spending time with his daughters, Abby and Scarlett.

Stephanie Brinkman | Marketing Account Manager
Stephanie Brinkman joined Summit Wealth Group as the Marketing Administrator in February 2021. She has a Bachelor of Science in Marketing with a minor in Graphic Design from Southwest Minnesota State University in Marshall, MN. 

(719) 633-4033 | 13710 Struthers Road, Suite 115, Colorado Springs, CO 80921
   Securities and Advisory Services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network.

Thanks for listening! Make sure to follow us on all the socials at @summitwealthgroup, so you don't miss an episode!

The Transcript

Stephanie

"Welcome to the Reacher Summit podcast. I'm your host today, Stephanie Brinkman, and I have the pleasure of co hosting with Scott Marks. Scott is a certified financial planner and financial advisor in our Scottsdale office. Welcome, Scott. Thanks, Stephanie. Looking forward to it. Today, we're going to talk about the 2023 market outlook.

But 2022 markets. Scott, tell us a little bit about that."

Scott


"Yeah, I think it's good to start off with a backdrop of what took place in 2022 before we talk about what we think might take place in 2023. Now, 2022 is overall a pretty rough year for markets. The Dow Jones, which is a measurement of 30 of the largest industrial companies in the U.

S., was down about 9%. The S& P 500, a measurement of some of the largest 500 companies, is down about 20%. The NASDAQ, which is a measurement of technology and growth companies for the most part, was actually down about 33%. And even the bond market was down about 12 percent in 2022. And there's a lot of reasons for that.

And some of those risks continue to persist into 2023, such as struggles with COVID 19 in China are still going on. We had a bit of an implosion with a few crypto companies within the U S. We've still got a war in Ukraine that isn't disrupting global food and energy markets. And inflation is still persistent near its 40 year high.

So there's a lot of risks going into 2023 that form a bit of a backdrop for what we expect might take place. Yeah, definitely. So given all of that, does that mean we're heading into a recession? If so, what does that mean for investment portfolios? Yeah, it's a great question, and there's been a lot of talk recently, especially about recessions, and I think the first thing we should do is start off by defining what a recession is.

And a recession effectively means two consecutive quarters of negative GDP. GDP means gross domestic product, and that's a measurement of how much we produce in the country. And technically by that measurement we already had a recession in quarter one and quarter two of 2022. There's been some revisions and it wasn't really classified as a recession at this point.

And really when it comes down to it, recession worries revolve around inflation and the Federal Reserve. So as the Fed continues hiking rates, it's reasonable to expect that the economy is going to slow and that's intentional. So the economic effects of rate hikes can actually take a year or so to show up in the economy.

And if it's severe enough, it's definitely possible that we see a recession this year. So not all recessions are created equal. What are some signs that a recession may be more mild or shorter lived? Yeah, and, and we have a lot of history to look back on when it comes to recessions and what's taken place to lead us to them.

And then of course, what's taken place through those recessions and out of them. And in this case, the interesting thing is due to a really continuous strong jobs market and consumer spending is actually still really good. So it's likely that any recession would be mild and short lived at this point. Uh, consumer spending accounts for over two thirds of the economy, and that spending is typically fueled by the job market.

So if we have both of those things still going, a severe recession really isn't possible unless we see some significant pullbacks in job growth and consumer spending. But as I said, both are still really strong at this point. Yeah, that's great news so far. Um, Scott, what was the job growth over the last 12 months?

Yeah, it's interesting looking back because job growth over the last 12 months was more than two times the level of past expansions. And there's actually more than 10 million open jobs right now. So we, we've seen some slowing in the labor market lately, and that's partially due to the Fed continuing to hike rates, but it would take quite a bit more before we see it hit any kind of recessionary levels.

And so for this reason, recession likely wouldn't take place until the second half of 2023, and it might not even take place at all. So all of this has been driven by the Federal Reserve's fight to reduce inflation through interest rate hikes. When can we expect the interest rates to level off? Yeah, it's a great question and it's one of those constant predictions that we try to make because when interest rates start to level off, we can start to see a more consistent interest rate environment going forward and it allows us to price assets a little bit more accurate.

Now, inflation is a bit of a double edged sword. So it's fueled by consumer spending and job growth, which as we just talked about, those are both still really strong and they're both good for the economy. So in order to slow down inflation, the Fed actually needs to take steps to make money harder to get.

And by raising interest rates, the Fed makes it more expensive to borrow money and it indirectly slows down the rate of inflation. The good news is that inflation appears to have peaked. late last year in 2022. And that trend's likely to continue. We've seen a few months in a row where we've seen inflation ticking down.

Um, the Fed might continue to hike rates. They're, they're probably not done just yet, but we're definitely closer to the end of that cycle than we are the beginning. And as that rate hiking cycle ends, it creates a really good foundation for market recovery in both stock and bond markets. So thus far we've covered, um, an outlook for the economy.

But I know a lot of people want to know, how does this impact investments? Yeah, great question. And the important thing is you need to distinguish the difference between the economy and the stock and bond markets. It's really important to remember that the economy and the markets are not the same thing.

In fact, the markets typically predict the performance of the economy 6 to 12 months in advance. Interesting. Okay, tell us more. So in some ways we could say that the markets have predicted what we think might happen in the economy this year. The good news for markets would be that our rolling six to 12 month prediction can now shift to predicting the economic recovery and assuming a mild recession, this allows for great opportunities for investors in 2023.

We saw a pretty significant decline in both stock and bond markets and specifically in bond markets. The decline was linked directly to higher rates, so if we see rates peak as we expect they will soon, current bondholders will be receiving a much more competitive interest rate. And they're not likely to see a repeat of 2022 as far as the performance.

Now, stocks are also impacted by rising interest rates, but entering 2023 valuations for most companies have been effectively reset close to their historical averages. And so. For that reason, there's less downside risk in stocks in the coming year than there was last year. Barring any changes to economic projections, um, we expect that the stock market can perform a bit better this year too.

So, the stock market's results will largely be dependent on corporate earnings, and we've already seen a lot of adjustments. by analysts to those earnings. And so their expectations have already been lowered. Analysts are typically too pessimistic in their projections as well. So if we see wage growth and interest rates peaking, uh, the damage may be less than we expect as well.

So as we just talked about, 2022 was a rough year for investors. Is it reasonable to hope that 2023 will be better? Yeah, I think so. And 2022 is definitely a difficult year for markets across the board. And regardless of how conservative your portfolio was, there wasn't a whole lot that worked. So after a difficult 2022, both the economy and markets were adjusting to higher inflation and interest rates.

We had supply shortages and other shocks. The natural expectations, things are gonna remain bad and what we're seeing in the data is kind of the opposite. We see those shocks and there's some real risks out there, but the economy is still doing better than expected and inflation is in the process of getting under control.

So we're definitely making progress and that progress should definitely continue into 2023. There's still a lot to worry about. And most of those worries we feel are already incorporated into the stock and braun prices. So, given the potential for 2023 to shape up better than expected, the possibility of investment returns being better than expected is also there.

Now, is it going to be a great year like 2021 for the economy and markets? Probably not, but it's likely to be much better than 2022. That's important. Remember, as with any investment plan, it's important to maintain a long term perspective and invest based on your goals and time horizons. So you don't want to take take all of this with a grain of salt.

And of course, the best predictions are still just predictions. We don't We don't necessarily know what's going to happen. We do our best to predict based on what we know, though.

Stephanie

"Yes. That's a great last point to end on there. Uh, we covered a lot of information today and as always, we recommend tuning out the noise and contacting your financial advisor. If you have any questions, thank you for your time today, Scott."

Scott

"Thanks, Stephanie. Wishing you a great start to 2023."

Scott

"You too."

Stephanie

"Thank you. Thanks for listening to the Reach Your Summit podcast brought to you by Summit Wealth Group. If you've enjoyed this episode and you'd like to help support the podcast, please share it with others and subscribe so you don't miss an episode.

If you have any questions or topics that you'd like us to cover, please email info at summitwealthgroup. com. Thanks again.