Investing in 2023: Shoot One’s Bolt!

The bolts that struck financial markets in the year 2022 are those which most are yet to recover from. Given the volatile past year’s condition, making clear statements for 2023 is challenging.

The impact of Russia’s invasion of Ukraine was unpredictable, as was China’s complete lockdown policy and its aftermath. Liz Truss’ entry and exit was also an unexpected spectacle or debacle.

Few people, even among those who correctly predicted that Fed would raise interest rates in 2022, envisioned the unprecedented rise in bond yields that saw the rate on decade-old US Treasuries more than double.

The year 2023 will bring on its platter the challenge of inflation, which is currently running at more than 10% in the UK. In the US, despite continued warnings from economic statistics and Treasury yields, the economy is fundamentally slowing down, and interest rates are rising for longer. The premium on equity risks is still comparatively low. This is indicative of the investor not being adequately compensated for the equity risk taken. Secondly, companies are likely to deal with tighter monetary conditions. The decline in sales is going to be a reason, and the other reason will be the loss of pricing power.

The period to watch out for in 2023 will be the initial months. On the face of it, treacherous inflation seems to be receding. However, financial experts think otherwise. It is going to be harder to shake off.

The shocks will give reality checks an additional bolt. Global economic conditions will be in negative. Home sales in the US have gone down by more than 30% from a year ago. While there was a growth of 5% in consumer sentiment in the US, it remains negative by 15% year after year.

While the lockdown fuelled online sales, with brick-and-mortar structures back in operation, the scenario has changed. Consumers want experiential shopping. Online sales have started hitting the floor. And newspaper headlines scream Amazon is laying off people.

Not far behind is Ford, laying off 3,000 employees. Officials cite “evolve for its future” as the reason. Lowering costs and evolution to electric vehicles are the reasons stated, too.

War, layoffs, and the international food crisis are all indicators of shaky ground. The global economy is headed in the direction of weak performance. The likelihood is that this severity and duration of the recession will have an impact on future prospects.

From the bolt of 2022 comes the thunder and shock of 2023. Raincheck anyone?

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