This week I’m covering my outlook for the economy and markets in 2023.

But before we get into 2023, we need to look at what happened in 2022. Because the biggest thing influencing the direction of the economy and markets in 2023, is likely to be a continuation of what happened in 2022.

So let’s recap 2022 and talk about the state of the economy and markets today.

2022 will go down in history as one of the worst years for both stocks and bonds ever. The S&P 500 Index finished down 20% and the Bloomberg U.S. Aggregate Bond Index dropped nearly 15%, a historic decline for bonds…so historic in fact that it was far and away the worst year for US bonds, EVER! This combination of losses hasn’t been seen since the 1930s Depression era.

If you owned a diversified 60% stock, 40% bond portfolio in 2022 (which many of you listening likely have a portfolio analogous to this mix), the decline for 2022 was 16.9%...the 3rd worst in history, only behind the great depression losses and the crash of 1937. Diversified portfolios did worse than the great financial crisis of 2008 and the dot com bust of the early 2000s. That’s because bonds held their value when the stock markets were in freefall, providing protection to more conservative and diversified investors. 

With interest rates going up so much in 2022, bonds fared almost as bad as the stock market, creating a lot of unexpected pain for even the most conservative investors. 

For much of the year, investors struggled with the uncertainty of mid-term elections, the outcome of the Ukraine war and most of all, just how much the Fed was going to raise rates to bring down inflationary pressures.

Tomorrow, I’ll talk more about continued recession fears in 2023 and how that might come to fruition, but for now, the theme of 2022 that drove the economy, stock and bond markets more than anything else was the Fed. 

Many people don’t appreciate or understand just how influential the Fed’s raising and lowering of interest rates is on everything. And with interest rates going up so aggressively, so quickly in 2022 to fight high and sticky inflation, I’m actually surprised that the economy and markets did not fare worse in 2022. 

But not much has changed for 2023. Although the midterm elections are behind us, it doesn’t appear that the war in Ukraine will wind down anytime soon, and with inflation still running hot, the Fed must continue raising interest rates in 2023, meaning that the economy and markets remain on shaky ground. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast.  

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