The Weekly Wealth of Knowledge is your download of this week's most important topics related to our community, financial planning, and the markets. The theme for February is "generational planning." All month long we will be providing you a host of content about transferring wealth to other members of your family and the appropriate strategies and benefits of doing so.
In this issue:
• How To Build Generational Wealth (2 min read)
• What Is A Rolling Recession? (3 min read)
• Opportunities In 2023 (3 min read)
BONUS: Webinar - Market Outlook 2023 - Finding Balance
How To Build Generational Wealth
As we continue with the theme of generational planning all month long, this week we further define its role and more importantly, how you can build it. Before assets can be passed down from one generation to the next, they first must be gathered and grown. Investing in the financial markets is one of the ways to do this, but there are also several other means to help you pursue the goal. If you have any questions, we are here for you.
What Is A Rolling Recession?
As the Federal Reserve continues its quest to slow inflation through monetary policy moves, the non-stop talk about whether a recession is coming or not are dominating the headlines. The disconnect is, many areas of the economy continue to do quite well, leading one to believe that a potential recession is avoidable. Time will tell, but perhaps we are actually in a rolling recession?
Opportunities In 2023
Whether you’re one to set ambitious New Year’s resolutions or simply use the beginning of the year to reset on a few habits, there’s almost always some value in reflecting on the past year before looking ahead. The same is true for the markets. When we look back on 2022, it’s easy to identify the challenges—but if we look closer, we can also uncover some opportunities.
First, we need to remember what we learned in 2022. The Federal Reserve (Fed) showed us they can and will take swift action to squelch inflation, as demonstrated by the sharp interest rate increases we saw last year. We also saw that severe inflation coupled with the Fed’s interest rate hikes had a larger-than-expected impact on the stock market. We also can’t forget the impact on bonds, with increased Treasury yields and ultimately, the worst year on record for core bonds (as measured by the Bloomberg Aggregate Bond Index).
So what does all of this mean for 2023—and where are these opportunities? In the bond market, it looks like we’ve uncovered some value, especially for those income-oriented investors. This is a welcome change after nearly 20 years of difficulty in finding stable income-producing investments as market interest rates continued to fall. With higher yields now available in some durable areas of the bond market, we believe investors may be able to enhance their income-generating portfolios, while potentially taking on less risk than in years past.
Turning to stocks, the early weeks of 2023 are looking more promising. Inflation is still high, but falling, the Fed is expected to end rate hikes by the spring, and there are renewed hopes for a softer landing for the U.S. economy; our expectation is that the economy will either narrowly avoid a recession or enter a mild, short-lived recession in early-to-mid 2023. These factors have allowed investors to begin charting a more positive path forward, which we believe will continue despite some potential choppiness in the market. We continue to favor U.S. equities over international markets, despite some pressure we may see on domestic profit margins this year. The international markets have also begun to show some signs of life as inflation looks to be peaking in the U.K. and Europe as well. Emerging markets have even bounced back slightly, although uncertainty over China’s economy remains a wildcard.
Overall, we see reason for renewed optimism when it comes to the markets in 2023. Should the Fed pause rate hikes in the near term as expected, we may see a nice stock market rebound supported by falling inflation, reasonable valuations, and stable interest rates. Further equity market volatility remains a risk, but we believe we’ll see more positive outcomes from the stock and bond markets this year.
As always, if you have any questions, do not hesitate to reach out.
Market Outlook 2023 - Finding Balance
Please join your MONECO Advisors' Team, along with special guest Dr. Quincy Krosby, Chief Global Strategist with LPL Research, on February 9th at 6:00 P.M. (EST) for an exclusive 2023 Market Outlook. Through all the challenges, newfound opportunities, and every high and low we’ve experienced during the last couple of years, it’s no surprise why we might all be striving for more balance.
Whether it’s about the markets and global economy or what’s happening in our local communities, the news we’re hearing on a daily basis has the potential to disrupt the balance of our lives. You will not want to miss this dynamic discussion on what 2023 may have in store for the markets, the overall economy and the potential impact on your financial plan.
The opinions voiced in this material are for general information only and are not intended to provide specific financial or tax advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.
References to markets, asset classes, and sectors are generally regarding the corresponding market index. Indexes are unmanaged statistical composites and cannot be invested into directly. Index performance is not indicative of the performance of any investment and do not reflect fees, expenses, or sales charges. All performance referenced is historical and is no guarantee of future results.
All data is provided as of January 31, 2023.
Any company names noted herein are for educational purposes only and not an indication of trading intent or a solicitation of their products or services. LPL Financial doesn’t provide research on individual equities.
All index data from FactSet.
The Standard & Poor’s 500 Index (S&P500) is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
This Research material was prepared by LPL Financial, LLC. All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
Past performance does not guarantee future results.
Asset allocation does not ensure a profit or protect against a loss.
For a list of descriptions of the indexes and economic terms referenced, please visit our website at lplresearch.com/definitions.