The last 12 months were undeniably a rollercoaster for markets, and no one could have predicted Russia’s invasion of Ukraine and the related energy crisis.
While we have seen increased volatility and expect similar in 2023, there are more reasons to be optimistic as we head into the new year.
While no one can predict the future, the consensus amongst industry experts is that while we are likely to enter a recession this year, it is most likely to be a mild and short-lived one, and, as things stand, not of the same magnitude as those seen in 2000’s dot com bubble nor 2008’s global financial crisis.
This may also be the most forecasted recession in the last 50 years which implies that equity markets have already priced in at least some bad news.
Inflation will remain a buzzword for 2023 but experts believe that inflation should start to moderate as the economy slows, the labour market weakens, supply chain pressures continue to ease, and Europe manages to diversify its energy supply.
Inflation could be close to its peak in the UK, and though it looks like we’ll still be living with higher prices, the good news is that the rate of increase should slow.
This also hopefully means that interest rate rises should slow and come to a halt in 2023, as central banks, including the Bank of England, come to the conclusion that inflation has been brought under control. While we may not see interest rate cuts this year, a stabilisation in interest rates would be very welcome for investors and borrowers alike.
Interest rates have a direct impact on the stock market and only time will tell what will happen.
Having said this, both stocks and bond have pre-empted the macro troubles set to unfold in 2023 and look increasingly attractive compared to the last 12 months.
We also think some sectors are better prepared to thrive in current conditions than others and that there is still potential in climate related stocks.
The healthcare industry is another potentially resilient space when times get hard. As something that no one wants to cut spending on, it’s relatively insulated from economic downturns.
On top of this, thanks to an increasingly ageing population globally, demand for healthcare services looks set to increase over the long-term.
Clear risks remain, however, so as always, we would highlight the critical importance of portfolios remaining well diversified across asset classes, geographies and strategies.
Overall, we believe we could see a steadying of the ship over the course of 2023; however, these remain uncertain times and if the last three years have taught us anything it is that anything can happen.
On top of this, performance over the last 12 months has potentially bruised many investors causing them to lean towards a more cautious approach.
Despite the turbulence of 2022 our stance remains the same. You should always invest with the long-term in mind and ensure that you have a fully diversified portfolio.
We would never encourage an attempt to time the markets as this is a near impossible feat to get right. Investors who try this run the risk of being out the market during market rallies, therefore missing out on returns.
Historically, the best days of market returns tend to happen after the worst days, making them easier to miss if you have already jumped ship.
While news flow is likely to remain negative for at least the first half of the year, it is important to remember that this news has already been priced in by the markets to a certain extent, meaning now is still a very relevant time to be discussing your investment plans.
If you’re looking to make your first investment steps or you’d like a second opinion on your portfolio, a Fairstone adviser could help.
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