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  • Writer's pictureMark Fonville, CFP®

5 Pivotal Insights to Guide Investors in 2023

Updated: Nov 26, 2023

5 Pivotal Insights to Guide Investors in 2023

Last year was a rollercoaster for investors, as markets plummeted and inflation spiked.

With the S&P 500, Dow and Nasdaq experiencing their worst performance since 2008 at 19.4%, 8.8% and 33.1% declines respectively - paired with wild swings in interest rates throughout the year - it can be said that 2022 tested even veteran market observers' knowledge of economics fundamentals like never before!

The 10-year Treasury yield skyrocketed from 1.51% to 4.24%, while the Consumer Price Index surged to its highest level in four decades – topping out at 9%. To combat these trends, the Fed responded accordingly by raising rates seven consecutive times through December 2021 reaching an unprecedented high of 4.25%.

Meanwhile various geopolitical factors such as Ukraine's war efforts or China’s “zero Covid" protocols compounded this movement leading both oil prices changes as well currency fluctuations which were felt worldwide.

The past year has been a roller coaster ride for even the most adroit investors. The multitude of consequences from Covid-19, including economic distress and fiscal/monetary stimulus measures caused markets to oscillate wildly. Though these fluctuations often inflict short term harm on finances, they eventually subside as equilibrium is reestablished in the global economy.

Despite these historic, tumultuous times in the market and economy over the past year, one thing remains consistent: there is no substitute for long-term investing. Remaining disciplined despite any short-term volatility seen across markets can be daunting; however through a diversified portfolio aimed at longer time horizons investors may stave off losses while positioning themselves to capture gains when opportunities arise - as we saw during March of 2020 prior to rapid recovery or even 2008 ahead of an exponential decade expansion. Now more than ever it's clear that staying focused on our goals should trump external factors when making investments decisions!

As we look to 2023, investors should take the time to reflect on five key lessons from the year gone by. Doing so can help them keep their eyes firmly fixed on a long-term outlook and make sound financial decisions going forward.

1. The historic surge in interest rates impacted both stocks and bonds

Stock and bond annual returns through 2022

After four decades of decreasing interest rates, the tables have turned.

The surge in inflation this past year acted as a catalyst for higher interest rates, leading to an unprecedented drop across numerous asset classes. This sudden shift has caused investors to rethink their strategies and explore new methods for long-term protection against market volatility.

In spite of ongoing diversity challenges, there is cause for optimism in many global economies. Inflationary indicators have seen notable moderation and central bank rate hikes have been largely accounted-for by interest rates settling down again since last year. Economists are generally expecting the trend to remain steady over 2023 as opposed to 2022's volatile pattern - though uncertainty remains high.

2. The Fed raised rates at a historically fast pace

Fed Funds Rate Chart Through 2022

The Fed has been resolute in its commitment to fighting inflation, as seen in their seven consecutive rate hikes over the course of 2022 and four 75 basis point increases back-to-back. As a result, rates are now at 4.25% to 4.50%, reaching heights not seen since before 2008's housing bubble crash - representing an ambitious bid for stability that looks set to continue strong into 2023 and beyond.

The Fed is navigating a delicate balance between inflation and recession, with the current market-based measures pointing to policy rates of 5% in the middle of 2023. Though two quarters of negative GDP growth occurred early this year, many economists still don't classify it as an official downturn - instead predicting that we may experience one in '23, albeit shallowly. The slumping economy could mean that monetary policymakers pull back before reaching their target rate for next year's midpoint.

Although markets welcomed the news of potential policy shifts from the Federal Reserve, leading to a robust rally in June-August and again October - November, 2022 proved that good news should be taken with caution. When investors' hopes for easing were met by an opposing reality, volatility ensued until year's end; serving as another reminder that data can inform market movements but must not replace rational thought processes.

3. Inflation reached 40-year highs but has improved

Consumer price index chart through 2022

The effects of the recent financial shocks may appear to be transient, but could still prove episodic. This is due to factors such as improved supply chains, lower energy prices and reduced rents now fading away; however wages remain in a tight market with potential for sustained inflation.

With investors eagerly awaiting signs of recovery in inflationary measures, the focus has shifted to where prices will be heading rather than actual levels. Good news is already being priced into markets with expectations that 2023 may bring better results across both headline and core inflation numbers - an encouraging sign for many investors.

4. The rallies in tech, growth and pandemic-era stocks have reversed

Chart showing U.S. Growth stocks vs Value Stock performance from 1995 to 2022

After a two year run of strong performance in tech, Growth style investing and pandemic-era stocks, the past year saw an impressive reversal. This resulted in Value outperforming Growth to mark the first time since prolonged market bull runs began several years ago. As economic growth decelerated and interest rates rose up again, investors were reminded that cautiousness does not have to mean missed opportunities for gains.

Investors should always be mindful that portfolio diversification is a vital component of successful investing, especially across size categories (large and small caps), styles (Value and Growth) desirable sectors, geographies (U.S., developed markets and emerging markets). During periods characterized by high investor sentiment - known as "fear-of-missing out" , or FOMO - it's essential to remain disciplined in order to maintain an effective long term strategy.

5. History shows that bear markets eventually recover when it's least expected

Bear Markets and Recoveries since WWII to 2022

Even though the previous year dealt a heavy blow to investors, markets have repeatedly demonstrated their resilience when faced with unexpected challenges. While it can take time for bear markets to regain momentum, predicting precisely where and when that inflection point will happen is nearly impossible.

Investing, like life itself, is a journey of twists and turns. The stock market often follows this pattern - long periods of growth followed by short bouts of turbulence that can quickly lead to flurries in investor sentiment.

Though it may be tempting for some to try their hand at timing the markets during such times, history has shown us again and again that staying invested provides greater returns than attempting any drastic maneuvers mid-cycle.

2023 could well see yet another example unfold before our eyes; so buckle up!

The past year was a turbulent one, yet by adhering to essential investment practices such as discipline, diversification and long-term focus investors can position themselves for success in the coming years. By committing to these strategies now they will be better able to realize their financial aspirations well into 2023 and beyond.


Mark Fonville, CFP®

Mark is a fiduciary, fee-only financial advisor at Covenant Wealth Advisors and specializes in helping individuals aged 50 plus create, implement, and protect a personalized financial plan for retirement.

Forbes nominated Mark as a Best-In-State Wealth Advisor* and he has been featured in the New York Times, Barron's, Forbes, and Kiplinger Magazine.


Disclosures: Covenant Wealth Advisors is a registered investment advisor with offices in Richmond and Williamsburg, VA. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. The views and opinions expressed in this content are as of the date of the posting, are subject to change based on market and other conditions. This content contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Please note that nothing in this content should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax, or legal advice. If you would like accounting, tax, or legal advice, you should consult with your own accountants or attorneys regarding your individual circumstances and needs. No advice may be rendered by Covenant Wealth Advisors unless a client service agreement is in place.

Registration of an investment advisor does not imply a certain level of skill or training.


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