- Stocks in the U.S. financial market are in an extremely negative moment for investment capitals.
- 2022 is considered a year to forget and investors are contemplating strategies for the next calendar.
- This paper discusses some of the likely trends that investors may adopt.
It is no exaggeration to say that 2022 was, from the outset, a miserable year for investors. The Federal Reserve’s aggressive policies threw cold water on the markets, leading to huge losses in major financial assets. In the midst of such an uncertain situation, equity holders are beginning to explore the major investment trends for 2023.
It should be anticipated that macroeconomic conditions would not experience a radical change compared to the current situation. In other words, inflation will continue to be the main protagonist in the economy. This last fact gains strength if the chances of a reduction in the intensity of interest rate hikes by the Federal Reserve are taken for granted.
If the Fed’s aggressiveness eases, the economy is likely to heat up again. Should rates fall to 3% by the end of 2023, the fight against inflation could be prolonged. These elements are vital when analyzing the fate of capital for the year around the corner. Arguably, the climate will not be very different from that of 2022 because the central bank’s measures are not expected to have an immediate effect.
Here are the top investment trends for 2023
There is a good chance that the main investment trends for 2023 will be similar to those of the year ending. During 2022, six rate hikes were practiced (one to go) and the effects on inflation so far have been timid. Employment is just beginning to feel the effects of the measures and retail consumption also maintains some strength.
As a result, inflation coming down to the Fed’s 2% target in the coming months does not seem to be in the analysts’ plans. It can be inferred from this that high prices will continue to affect the purchasing power of millions of people in the United States. At the same time, the central bank will maintain considerably high rates as it waits for inflation to show clear signs of receding.
This “in the meantime” could last for practically all of 2023, according to experts consulted in Forbes. In this possible context, these could be the investors’ fields:
- Treasury hedge securities.
- Alternative assets.
There are other trends that could very well be on this list. These include: estate planning, the revived renewable energy sector, Series I savings bonds and others. This list of investment trends could also include the ever-present “buy low” of common stocks. In any case, the three investment trends listed above are arbitrarily considered by this paper to be the hottest for 2023.
It is certain that the conditions that characterized 2022 as a negative year for investors will not last forever. In that sense, the bottom for stocks could be precisely next year. It should be noted that the benchmark S&P 500 index outperformed the bear market during the second half of the year, suggesting that the bottom would already be defined. So far, the SP is -17% from its recent peak.
1. Yes, 2023 will also be a year of inflation
As mentioned above, rate hikes will not have the desired effects on inflation in a short period of time. If we add to this the commented lowering of the intensity of the next increases, a slow fall in CPI is to be expected. Simply put, 2023 will be a year of high prices for Americans by about the same amount as 2022.
“Analysts expect the Fed’s actions to have a slow effect on inflation, so 2023, in some ways, will be similar to 2022.”
Morningstar analysts believe that rates, whatever cap they reach, will experience 3% declines by the end of the year. Thus, if rates reach 5%, some year-end FOMC meetings will knock 200 basis points. As you might expect, this would not be a good move if you really want to beat inflation. On the other hand, one should not lose sight of the fact that the Fed’s decisions are closely tied to the numbers, which makes this Morningstar prediction not entirely safe.
But excluding that hypothetical rate cut, inflation would remain high for much of next year. Americans would face high prices on all goods and services, from everyday purchases to cars, subscriptions and so on. This translates into purchasing power remaining low and, as a consequence, capital flowing into certain asset classes.
This scenario makes Treasury Inflation Protection Securities (TIPS) an almost certain investment trend.
Although equities could be harmful to capital, refraining from investing would also have negative effects given the capital degrading power of inflation.
Safe haven assets could also be counted in this branch. However, it should not be forgotten that the performance of gold and other reserve metals has not been convincing.
2. Investments in alternative assets
Another popular potential destination for capital could be alternative investments. Some assets undervalued or despised by investors would finally be in their portfolios during 2023. Among these, commodities stand out. Alternative investments are almost a must regardless of collateral factors, as money cannot remain idle.
It is worth noting that alternative assets become a great value piece for a variety of reasons. It is worth saying that they have little or no correlation with stocks and bonds. The latter allows them to lock in the damage from the volatility of inflation and recession. In addition, they would enjoy a much bigger boost in their yields when compared to dividend stocks.
Most of these alternatives are restricted to a select group of experienced investors. But circumstances would prompt a wide variety of investment capital holders to put money into them. Among the main alternative assets are the aforementioned commodities and futures managed through a competitive selection of exchange-traded funds (ETFs) and low-value mutual funds.
Although this is a more expensive investment, it would be offset by the performance of these alternative assets, says Forbes. As such, this could be one of the favorite investment trends for the coming year. As far as commodities are concerned, the choice should be handled with great care considering that a severe recession would drive demand for many commodities to the floor.
3. The crypto market among the possible investment trends
The third of the possible places for capital, selected by this paper, are cryptocurrencies. They are among the most feared assets of 2022 due to the events and the spectacular falls they suffered. For many analysts, the bet on cryptocurrencies is “almost certain”, given that their bottom is “obvious”.
Simply put, 2023 could be a better year for cryptocurrencies, as they could hardly be worse off. In 2022, macroeconomic conditions coupled with scandals, hacks, frauds and massive bankruptcies of companies in the sector made headlines. Major crypto market assets suffered losses in excess of 70% reaching 98% in some cases.
The cryptocurrency slump ruined the capital of thousands of investors of all calibers, including the national assets of El Salvador. Naturally, that bleak outlook drove interest to a minimum. In the midst of such a state, a rebound is to be expected. At the other extreme, the correlation of these currencies with risky stocks could lead to further declines in value. It should not be lost sight of the fact that the consequences of the FTX bankruptcy have not yet fully manifested themselves.
Despite the current fear, the crypto market could be among the investment trends for 2023. One of the reasons for this is that the U.S. authorities could take decisive steps in the field of regulation, which would eliminate the anarchy of that market and ensure a minimum of security for investors. Legislators look enthusiastic and financial authorities are moving forward with a CBDC.
Be that as it may, investment in digital currencies will always be a high-risk issue due to the young nature of this market. However, this year’s debacle could be the prelude to a major bull-run, which are not rare in this sector.
Fossil fuels seems the best investment for 2023. Sure there my be a recession, but China won’t have one as they will be ending their COVID lockdown policy, EU sanctions are just kicking in, Iran isn’t getting off the naughty list, OPEC doesn’t have any interest in increasing supply and the Ukraine war will eventually cut into Russian output. And recessions eventually end.
Second best should be gold. The play here is that global CBs who now hold $12T in reserves, 60% in $USs are going to start selling dollars both to pay for high energy costs and to remove counterparty risk now that the US has decided [with Russian asset freeze] to weaponize the dollar. They’re going to want liquidity in liquid hard assets like gold. And of course the BIS has recently permitted gold to be counted 100% (up from 50%) for Tier 1 reserve qualification. I’d include Bitcoin here, as the BIS as also permitted up to 2% of reserves to be held in BTC, but it’s just too small a market (on the other hand, just a tiny allocation of CB reserves could make BTC soar)
A recession would also be good for gold IMO because the Fed will be forced to cut interest rates, weakening the $US, which is good for gold.