Some Thoughts for 2023
As the calendar turns each year, our industry is renowned for year-ahead market and economic predictions. Very few turn out to be correct.
For instance, how many analysts said last year that bonds would lose nearly 15%, the U.S. stock market would be down 20%, energy prices would skyrocket then cool, and yet unemployment would continue to fall?
Our managed portfolios did significantly better than the S&P 500 last year, primarily due to our overweight in energy and dividend stocks. However, rather than try to predict market movements—which no one has ever been able to do with remarkable consistency—we try to recognize major market trends across many asset classes and apply those beliefs to your tolerances and goals.
We still advise a below-normal allocation to the U.S. stock market. This is due to many factors, such as a recent decade of well-above-average returns, decades-high inflation, interest rates increasing to where “safe money” may return as much as “risk money,” geopolitical risk that could continue to make waves economically, and the fact that the government printing presses may be closing for some time.
Additionally, we suggest clients continue to ladder out individual corporate investment-grade bonds for up to five years. This should see us through the end of this economic cycle and provide a good base of return for your portfolio through any additional turmoil.
Other tactics we intend to employ in 2023 are increasing our attention to trend following and becoming more active. For instance, to begin the year, the S&P 500 has rallied nearly 5% as of January 23rd. With the uncertainty of market returns for the rest of 2023, one must question whether profit should be taken soon for their personal portfolio. In our managed portfolios, we are of the mindset that we may take profits if we see much more upside, with the thought that at some point this year, volatility will allow us a lower re-entry.
It is a very difficult game to play and not one that has led to much long-term success for any investor, but we believe we will need to pocket profits when we can for the next year or two.
Areas of the market that have broken out of their long downtrends include gold, international developed markets, and emerging markets. Don’t forget about an allocation to foreign stock markets. Usually, when the tide turns from favoring the U.S. to favoring the international, the change lasts for a number of years. It is a shift we must try to recognize, as it has been a long time since the international markets have outperformed.
To recap:
Below-normal stock allocation
Have an investment-grade bond ladder
Consider taking profits on rallies
Have an allocation to gold and international markets
Make sure you chat with one of our advisors to make sure your long-term plan is still on track
Best wishes for 2023!
Nate Lovelle, CFA
918-984-9102 Direct
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.
Information contained herein does not involve the rendering of personalized investment advice but is limited to the dissemination of general information. A professional adviser should be consulted before implementing any of the strategies or options presented.
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