The year 2022 was a challenging period for investors, with Central Banks around the world raising interest rates to combat rising inflation. This created uncertainty in the markets, leading to a difficult period for both equities and bonds. Bond yields were
unusually volatile, with investors searching for safety and stability in the markets.
However, there is some positivity to be found going into 2023. In recent weeks, there has been some stabilisation in bonds, and short-dated corporate bonds are starting to become more attractive.
Exposure to alternatives is also attractive currently, as a form of diversification. Despite the easing of inflationary pressures, inflation is predicted to remain for several years, and interest rates are likely to remain above Central Banks’ inflation targets of two per cent.
Inflation appears it may have peaked, with US and Eurozone inflation down from their highs. This is driven mainly on the goods side with falling energy prices, shipping rates back to pre-Covid levels, the ending of log jams at global ports and a general easing of global supply bottlenecks.
The Federal Reserve (FED) in the US has been aggressively increasing interest rates, and it is expected to reduce rates to stimulate growth in the event of an economic slowdown. Persistent high inflation and rising rates of 2022 are unlikely to be repeated in 2023. There is an expectation that interest rate hikes will continue, at least for the first half of this year.
The market outlook points to a considerable chance of a recession in the next 12-24 months. If this does transpire, it is expected to be a mild recession and not a severe one, as corporate balance sheets remain strong. Economic data has provided some hope, with more resilient economic indicators emerging, particularly in Europe.
Recession in Europe may be milder than that was feared two or three months ago. Challenges and uncertainty in equity markets are predicted to continue in the short term, but not to the same extent as 2022.
Equities may struggle and see some short-term downside in the first half of the year, with some upside in equities in the latter part of the year.
Despite the challenges, positive returns are expected for both equities and bonds in 2023. Long-term growth estimates remain positive, and investors should try to look beyond the short-term challenges and uncertainties. While there may be near-term
challenges, staying diversified can create opportunities for long-term investors.
Investing in the stock market involves enduring periods of market turbulence, which can be unsettling for investors. However, staying invested throughout a market cycle has historically yielded greater rewards over the long term.
Market rebounds after significant losses have proven to be significant, which is why it’s essential to stick to a sound investment strategy. Timing the market is a daunting task, as anticipating highs and lows is challenging, and getting it wrong can lead to locking in losses and missing out on future gains.
During times of extreme market volatility, such as the current climate, investors may be tempted to make sudden decisions. However, taking time to review and refine your investment strategy with a financial broker is a wiser choice. By following fundamental investment principles, investors can improve their chances of achieving a positive outcome.
Remember, the market will experience highs and lows in response to social, political and economic events, but staying the course is crucial for long-term investment success.
Here to help you navigate your way to financial security
The Milestone Advisory team are qualified financial services consultants. We specialise in helping professionals in the construction sector and related industries. Our team will work with you to review your finances, explaining your options in clear English.
No jargon – just the facts.
For more information contact Darragh Hogan on [email protected]