2023 Follows Difficult Year For Economy And Markets, But Adjustments Remain Possible

STEPHEN KYNE

The year 2022 was an incredibly difficult year for the economy and the markets. In fact, it was the worst year for U.S. stock markets since 2008. Rapidly rising interest rates meant that there were few places to hide as an investor, since even fixed income funds sank due to interest rate pressure.

The S&P 500, the most broadly used US index, ended the year down 20 percent, while the NASDAQ suffered a 33 percent loss, according to FactSet. You’ll be in good company if you open your December statement and find that your balance dropped in 2022.

Down years happen, and it’s something that every investor must accept. The question is: Where do we go from here?

We think that the economy and markets will be impacted by several factors. The first of which will be the continued raising of interest rates by the Fed.

Your personal retirement accounts may be one of your biggest sources of income, and you could be surprised by how much—or how little—even a seemingly large retirement account could provide over the course of a long retirement.

Close the gap: Adjust your strategies to pursue the income you’ll need/

You will then be ready to consider any adjustments you might need to make to pursue your retirement goal. If you’re now in your mid-30s, you may have 30 years to build assets, but if you’re relatively close to retirement, a first step may be figuring out what you’re spending today and calculate whether you’re currently on track to support that in retirement.

“Even if you find that you’re behind where you want to be, don’t get discouraged,” advises Jeremy Kaneer, director, Retirement & personal wealth solutions for Bank of America. “There are a number of ways that you can catch up.” First, be sure you’ve maxed out tax-advantaged retirement plans, such as a 401(k) or IRA, and taken advantage of any employer match. And don’t forget that if you’re over 50, you may be eligible for additional “catch-up” contributions.

“If that’s still not enough, consider other ways to invest for your retirement goals,” says Kaneer. Tax-advantaged options include certain annuities and cash-value life insurance. You might also want to consider participating in a highdeductible health insurance plan, Kaneer adds. When you do that, you’re eligible to contribute pre-tax dollars to a health savings account, which can be rolled over year after year and used in retirement for more than healthcare costs.

Beyond saving, you might want to consider revisiting your investment strategy, Koh says. “Asset allocation and thoughtful, goals-based portfolio management are two things that can potentially steer you to a better retirement outcome.”

Remember, too, that retirement is a journey, adds Kaneer. You can always change course if you need to—maybe by working a few years longer or adjusting your expenses. But by starting early and planning ahead to pursue a specific attainable goal, you’ll have a far better chance of living the life you truly want in retirement.

Caught flat-footed in early 2022, the Fed began a rapid series of interest rate increases in a desperate attempt to rein in rampant inflation, which resulted from the wanton subsidies and stimulus of the government’s pandemic response. Since interest rates are essentially the price of money, raising them should slow down economic activity, although it can be a messy and very imprecise process.

The goal of the Fed is to reduce inflation, while maintaining employment, and keeping the economy from crashing into recession. This is the socalled “soft landing.”

We expect continued interest rates increases through the first quarter of the year, and hope that, by then, the Fed will take a breather. The risk, since the Fed relies on prior-period data, is that it won’t know if it’s gone too far, until after it’s gone too far.

Recent economic data shows inflation beginning to ease, while we still have full employment, and an economy that rebounded in the 3rd and 4th quarters of 2022. One wonders, then, whether Jerome Powell would recognize a soft landing if it fell on him.

Internationally, we would be remiss if we didn’t give proper attention to the geopolitical risks facing the economy. 2022 saw much of the world deal with food, energy, and physical insecurities, all of which weighed heavily on economic activity.

The war in Ukraine, which threatens to become a wider conflict, has weighed heavily on the region, and has likely pushed Europe into recession. Europe would deserve more credit for finding alternatives to Russian energy, if it hadn’t been so reliant on it in the first place. Its fate, and the fate of its markets in 2023, will likely be closely tied to events in Ukraine.

China’s somewhat manic departure from three years of zero-COVID has thrown the region into unknown territory. While the Chinese government has not issued official figures, many outside estimates indicate that a million citizens may die in just the first four months of 2023. The question will be whether, once the initial waves have passed through the population, the country will finally be able to get back to work, and will global