2022 (and good riddance to it) was as expected. The free money party ended, the Fed worked to stuff the bloated and well-fed Genie of Covid past back into the bottle. The inflation fight got real. This time last year, a dozen eggs ran you about a buck and seventy-five cents. Today its twice that, or more. If you bake, or eat, you see it in real time. The poster child of the task at hand. As I opined pretty much all of 22, I do expect the Fed to win the battle. They have no choice. This isn’t one of those political things where they “try” and fix it. They “will” fix it. There is no option, and they know it. There will be economic damage as the economy is slowed. Probably more than some think but less than some expect. More on that in the thoughts/prediction section below.
2022 was fun to watch (unless you were heavy into crypto) as the “stupid stuff” people bought in to absolutely blew up on the launching pad. Like most bull market endings, folks are being trotted off in handcuffs as we prosecute the “bad guys”. This time it’s a chubby kid in a stained t-shirt with a bad haircut. Like in the past, when the music ends the concept “return OF principal” means a hell of a lot more than “return ON principal”. The meaning of “risk” is now crystal clear and the world seems like a dark and dangerous place to invest ones hard earned money. Heck, the Fed’s are even going after the social media stock touters who drove up prices only to profit from their holdings. Unceremoniously selling the crap they touted as the great unwashed masses followed the advice of some dope on social media. If I didn’t know better, I would think I “time capsuled” back to 2000.
2022 was a year of drama and spin. The mid terms came and went and did provide us with divided government. Trust me, that’s a good thing. Especially with the Fed doing what it needs to. We don’t need a well meaning but economically devoid political platform of “fighting inflation with inflation” as things progress. We need government to do what its good at. Nothing…. Just sit there and don’t screw it up. At least economically.
So enough of the history. The thoughts moving forward. Feel free to hold em and we can re visit this time next year. For entertainment purposes only and not to be wagered upon….
The start of 2023 will see the job market influence of the Fed tightening. I expect to see layoffs starting early in the year. Pretty significant ones too. The consumer is stretched. The last hurrah of travel and leisure is the Christmas season. The new year will bring a whole new level of belt tightening across all sectors of the economy. We are already seeing slowing in big ticket purchases (cars, furniture, computers, houses). As the spring progresses, we will see the softening in the real estate markets that the numbers have indicated. If the spring sales season is soft, the reality will be hard to dismiss. I don’t expect a 2008 level debacle but do believe a decline of 10 to 15 percent from the high is a realistic target. Same with layoffs, don’t expect a 7 percent unemployment rate but enough to put a scare into people. Especially when the matrix (er… news networks) start their spin. Will prob make it sound like the next great depression. The summary is that recession will be acknowledged. Not a soft landing but not too hard either. Enough that I would expect the Fed to potentially stop raising rates by the summer and maybe start to lower them a little by year end.
From an investment standpoint, I do expect a positive equity (stock) market return in 2023. Higher positive returns than consensus. The new year could start choppy and have more downside left but drift higher by late summer. Putting a pin in it, something in the 20 percent range to the upside by year end. Hard to nail down as we don’t know where 22 will end, but you get the drift. The side comment is that the return could be significantly greater if things fall into place. Things like the Ukraine conflict ending or China economic improvement would pad the numbers. Downside risks are still there, and the next one (risk) is always unknow till it happens, but the synopsis isn’t all bad. A lot of bad is priced into current markets. Headlines will remain rough but as people focus backwards, markets look forwards.
In closing, and the reminder…. none of this should influence your macro level financial plan or investment allocation. If those are well thought out, and your investments sound, you are where you need to be. Understanding the environment allows you to put the relative returns of your own investments into perspective. Years like 22 are going to happen. Laws of gravity have not been repealed. No, it’s not fun but it’s all part of the long-term economic process. In the movie called life, the actors change but the show never does.
As always, stay well and enjoy the holiday season. We wish you and yours all the best. We are here for you now, and all year long.
Ed, Frank, and Tammy
Edward Stiles
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Kennett Square, PA 19348
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