2022 Investment Review and 2023 Outlook: Diversification, China’s Reopening, and Recession Risks

2022 was a lousy year for investors. Both stocks and bonds went down, and bonds, supposedly the least risky of the two, went down almost as much as stocks. Diversification—the hope that if something went down, something else would go up—didn’t work.

Gold, whose proponents tout it as an inflation hedge, also declined precipitously. Moreover, both stocks and bonds fell victim to rising inflation. The winners were oil stocks and the dollar; however, most funds only own a few oil stocks, and individual investors mostly shy away from the currency markets for investments.

Outlook for 2023

2023 has started with a bang. Just about all asset classes are rising. Some, like emerging markets stocks, have increased a lot already. Many hope China is finally reopening its economy and will offset any weakness brought about by the Federal Reserve’s continued rate hikes.

However, there is a risk that the Chinese reopening will increase oil demand, pushing prices higher and making the Fed’s inflation-fighting more complicated.

Recession Risk

So, 2023 is shaping to test whether China’s reopening provides enough stimulus to offset the recessionary risks of the Federal Reserve’s interest rate hikes. The bond market leans toward an economic slowdown as the yield curve remains severely inverted, a solid predictor of recessions (An inverted curve means short-term rates are higher than longer-term rates).

My prediction is that I do not know, but I am confident that diversification will help this year, unlike last year. If the economy goes into recession, bonds should do okay; if economic growth picks up, stocks should do okay. And if we are lucky and end up in a goldilocks scenario with solid growth and low inflation, both could do okay.

Finally, a favor, please. No obligation to do so. The Securities and Exchange Commission changed its marketing rule allowing financial advisors to market testimonials and endorsements. If you can provide me with one by sending it back in an email, I may put it on my website.

Also, because of the pandemic, we have yet to meet in person as much as I would like. So I hope we can meet in person this year.

These are the opinions of Financial Advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice. Content provided via links to third-party sites should not be considered an endorsement of content that we cannot verify completeness or accuracy of.

Tim Hayes

Tim Hayes

Tim has offices located in Boston and South Dartmouth, Massachusetts. He is licensed to handle securities in six states, including Massachusetts, Rhode Island, New Hampshire, Connecticut, Maine, and Florida. Moreover, he can provide investment advisory and financial planning services to clients in all 50 states.
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