Market Update: Looking Ahead to 2023

The stock market was volatile for all of 2022, and investors may be wondering if we’re going to experience more of the same in the new year. Unfortunately, no one has a crystal ball to predict the future, but looking at past recessions may help us gain perspective and understanding.

Recession History: What can past downturns tell us?

Source: BLS, Ibbotson, J.P. Morgan Asset Management. Time zero represents the numeric low of the S&P 500 Total Return Index associated with the recessionary period defined by the shaded grey area; data shown in months. S&P 500 Index is rebased to 100 at time zero. Guide to the Markets – U.S. Data are as of November 29, 2022.

When considering economic downturns, there is a similar pattern when recessions are coming. We looked at recession charts starting from 1960 all the way to 2020. In looking at the recession from December 1969 – November 1970, for example, we see that the market begins to trend downward even before the recession technically hits. The reason why this happens is that investors may start to become concerned that economic conditions are not ideal at the present moment and also in the next quarters, causing that downward trend. Meanwhile, companies begin to lay people off, and unemployment starts to rise. 

Eventually, the stock market will bottom out and begin to recover, but the unemployment rate doesn’t yet reflect that. Many investors wonder why they can’t “sit out” and wait for that recovery, but that strategy won’t help because the recovery is dependent on forecasts that have already taken place. By the time an investor would “jump back in,” they would have already recovered their losses. 

Are we in a recession?

Are we currently headed for a recession? We have not yet hit a recession, and we may still be in for a soft landing, especially with the Fed’s measures in trying to control inflation. If we were, however, we’d expect it to happen between the spring and fall of 2023; we are already seeing companies announce layoffs. With inflation cooling as of the end of last year, we might already be seeing the beginning of a market rebound. 

What should investors do to prepare for a possible recession?

We will continue to evaluate market trends and economic activity on a quarterly basis, but we will always be here to answer any questions you may have about what’s happening currently. If you have concerns about a possible recession and want to know how to handle your investments accordingly, we can help. Contact us today to discuss your personal financial situation and the options available to you.

Sincerely,

The Team at Chatterton & Associates

Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Royal Alliance Associates, Inc nor its representatives provide tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.