2022 was not a good year for the markets. After years of inaction the Federal Reserve decided to normalize their short-term interest rate target, raising it from near 0% to over 4% in just one year. The Federal Reserve’s dramatic action, after years of inaction, hit the market hard. Growth stocks and long bonds were particularly vulnerable. Fortunately, Value stocks held up and energy stocks soared. 2022 proved a diversified portfolio is again the best idea.
So now what?
With the nervousness looking into the year ahead, a few important observations should be stressed.
- Much of the interest rate increases are behind us. They are now closer to historic norms.
- The love affair with the giant technology stocks has been mostly corrected. Their stock prices are now more aligning with their underlying value.
- The mania of the new technology, no earnings, disruptor stocks is gone. Many of these stocks will survive, but now at much lower prices.
- The massive economic distortions caused by COVID and the resulting lockdowns are easing, although repairing the damage will take time.
Back to Normal
Hopefully, the stage has been set for a normal 2023. Great gains in the markets should not be expected. Corporate earnings may be weak. Interest rates are not going down. Our economy may only muddle through. We have been here before, and it is happening again. Progress will continue to happen in fits and starts. Markets will be volatile and staying properly invested will be the path to long term success.
As always, know what you own, do no overinvest, and stick with quality.