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2022 was a tough year for the economy, and that’s an understatement. This year saw the worst year for the S&P 500 in over a decade, and the index is still poised to decline as we roll into the new year.
We’re expecting to be down over 17% by the end of the year, which is the S&P’s first double-digit losses since the Great Recession in 2008.
When you’re looking at these numbers, it can be easy to be swept into hopelessness as we turnover a new calendar year. But even though the outlook can be grim, it doesn’t have to scare you out of your financial journey.
Dips in the economy can be a prime opportunity for young people and new investors who are in it for the long haul. During a bearish market, entry into high value stock is at a low, making the entry to investment more accessible than previous years.
High interest rates and Federal Reserve inflation rates aren’t going to be taking a backseat in the near future, but these rates are poised to ease in 2023.
Here’s what else experts are expecting in the 2023 economy.
Inflation
The Fed’s war on inflation has been the driving force of our recent economic downturn. The feds had to set the inflation rate to zero during the height of the COVID-19 pandemic to keep the threat of economic catastrophe at bay, but a lot has changed since then.
2022 saw a sting of supply chain issues, a historic drop in unemployment, and consumer demand that created the perfect storm for an inflation spike. But unfortunately for people across the nation, the inflation spike has stuck around.
We have seen record-breaking price increases for essentials, which some experts correlate to the consumer price index (CPI) falling to 7.7% in October of 2022.
The decreasing CPI is a win for the feds and could indicate that inflation rates will ease in 2023, but inflation is not the sole factor into whether we should be expecting a recession or not.
Is Recession Around the Corner?
High interest rates are a primary indicator of a potential recession, and they will likely continue to rise in 2023. Experts foresee the federal interest rates climbing 1% by June of 2023, and others predict that the S&P will fall 1.7% in the fourth quarter of 2022 and rise again by 1.7% in the first quarter of 2023.
Despite these not-so-positive outlooks, the stock market is looking up. The economic growth from the pitfalls of 2022 is resonating in the market and signal cutting interest rates are expected to recover the economy by the end of 2023.
Stock Market Outlook
In general, higher interest rates from the federal reserve causes the stock market to drop.
Which is why high interest rates are not great for investors.
High interest rates discourage businesses from perusing growth and subsequently borrow less money, diminishing the need to sell more stock, Additionally, high interest rates discourage professional investors from buying into new growth stocks because of the value of future earnings is less attractive in times of decline.
Growth Stocks
Growth stocks are known to underperform in times like this. If the federal interest rates continue to climb in 2023, we can expect for growth stocks to fall.
Value Stocks
Even though growth rates have taken a fall, value stocks have held up despite the economic downturn of the past year. We can expect for value stocks to continue to outperform growth stocks until interest rates have dropped significantly.
The Bottom Line
Coming into 2023 with the inevitability of economic down-turn and the potential threat may not have you in high spirits. But times like this present an opportunity for young people to change their finances for the better. Take this time to enter the market at a low cost, and watch your investment grow for years to come.
In summary, keep an eye on interest rates throughout the year to get a sense of where we are headed.