Goodbye 2022! Hello 2023!

No doubt, looking back 2022 was a dismal year for both stocks and bonds. In fact, it was the first time that both stocks and bonds were negative for three straight quarters in over 4 decades – that’s over 40 years! Many investors have never seen such a thing in their lifetime. It is truly a rare event. Consider the following since 1976:

Good year for bond and equity investors – 72% of the time
Good year for bond investors, not so good for equity investors – 17% of the time
Good year for equity investors, and no so good year for bond investors – 9% of the time
Bad year for both bond and equity investors – 2% of the time

Source: FactSet, Data as of 12/31/22

What is our outlook for 2023? There is certainly a lot of talk and data indicating we could be headed for a recession. It’s been months in the making. The US economy will likely face a mild contraction with various industries rolling into a recession at various times. However, we believe that the depth of the decline will be contained by still strong consumer fundaments. 

Despite an economic slowdown, we don’t think the Fed will be quick to pivot or implement interest rate cuts. Instead, the Fed is more likely to pause rather than reverse its aggressive 2022 interest rate raises.

Then there is inflation to consider. We anticipate inflation to slow and start cooling or moderating. We are just beginning to see major components of inflation decelerating.

Bottom line: We believe that there will be more positive developments than negative developments in 2023. The headwinds of 2022 could well shape into the beginning of tailwinds in the latter half of 2023.

Data and views expressed in this commentary are the opinion of the Raymond James Investment Strategy Group led by Chief Investment Officer, Larry V. Adam III, CFA®, CIMA®, CFP®, January 2023