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What to Expect in 2023

Brad’s Note: 2022 was an incredible year, riddled with “unprecedented” moments… And for most investors, it was likely in a bad way.

  • For the first time in history, both stocks and bonds fell double digits.

  • U.K. bonds fell 50% in two days (they were 5X more volatile than Bitcoin).

  • Some of the pandemic’s best-performing stocks fell 90% or more.

  • And with five bear market rallies, it was one of the most volatile years in history.

Naturally, investors want to know what to expect in 2023.

Here at Intelligent Income Daily, our goal is to introduce you to the best income-producing opportunities in the market. The kind that will reliably generate income through all kinds of economic conditions.

So today, I’m going to bring in my number-crunching analyst Adam Galas. He’ll walk us through the four most important things to pay attention to and what it’ll mean for your portfolio.

We also have an exciting project we’re working on for next year that can help you prepare for 2023. So read on about it all below…

There are four economic indicators everyone will be looking at in 2023. Based on the various sources and research I do day in and day out, here’s what the experts and data suggest we’ll see in the year ahead for:

  • Inflation

  • Interest rates

  • A recession

  • And unemployment

Inflation peaked at 9.1% in June 2022 and has been falling for five consecutive months.

Economists and the Cleveland Fed expect it to fall next year by about 0.1% per month. That’s because they believe most of the supply chain issues the pandemic caused have now been fixed.

Housing costs, which peaked in mid-2022, are finally starting to show up in official inflation reports, and wage growth is also starting to cool.

Inflation of goods has turned negative, and shipping costs are down 80% off their pandemic record highs.

And don’t forget that inflation measures how much prices change yearly. After a year of 8% inflation in 2022, it’s bound to fall, barring another year of extreme surges in commodity prices.

Interest rate hikes are another thing to look out for next year.

The bond market – which is often called “the smart money” because of its accuracy in predicting future economic conditions – is now expecting the Fed to:

  • Hike 0.5% in February

  • Hike 0.25% in March

  • Peak Fed funds rate of 5%

The good news? 5% is a lot better than the 7% some Fed presidents previously said they might have to hike to.

The bad news? It would still be the highest short-term interest rate in 20 years, which means slow growth for the U.S. economy.

With this in mind, the bond market is also confident of one other thing we’ll see in 2023…

A recession is so certain, the probability for one in 2023 is at 170%. Meaning it’s predicting a 100% chance of a recession starting much earlier than the end of next year.

Based on 18 economic indicators I track and current economic conditions, we could see a recession begin between February and April 2023. This is consistent with what the economist teams at financial services firm UBS and Goldman Sachs expect.

But here’s the good news. This recession is likely to be much milder than others we’ve seen in previous years.

Here’s what some of the experts at leading financial institutions are predicting in 2023:

  • Bank of America: 0.3% gross domestic product (GDP) decline

  • Deutsche Bank: 0.5% GDP decline

  • JPMorgan: 1.4% GDP decline

For context, the mildest recession in U.S. history was a 0.3% decline in 2001. This means 2023’s recession is likely to be mild or average at worst.

Unemployment is expected to rise from a 53-year low of 3.5% to 4.5% to 6%. But before you get alarmed, it’s important to note:

  • From 1948 to 2022, the average U.S. unemployment rate was 5.7%.

  • And for 92% of that period, the U.S. economy was growing.

In other words, even with a recession all but certain next year, unemployment is only expected to rise to historically average levels.

70% of the U.S. economy is driven by consumer spending, and almost all consumer spending is driven by wage income. If people have jobs and their wages are not falling, consumers will keep spending.

With consumers not expected to lose many jobs (about 1.5 million to 3.8 million total job losses) and wage growth expected to be moderate (around 3.5%), we expect to see spending continue even in the 2023 recession.

So what does all this mean for the U.S. stock market in 2023?

What To Expect From the Stock Market In 2023

2023 is likely to be a very different year from 2022. After we reach a mild recession, inflation should fall steadily. And the Fed is estimated to hike just 0.75% and pause rate hikes in March.

Bond yields, which soared by 4.5% in 2022, are expected to peak and fall steadily by February. That aligns with historical averages, where bond yields start falling a month before the last Fed rate hike.

However, given that this is the most anticipated recession in U.S. history, bond yields might have already peaked.

What could this mean for your portfolio? Great news. Finance giants HSBC and Nomura both expect 10-year bond yields to fall about 2% from recent peaks, to around 2.3% in 2023.

And thanks to their inverse relation with stock, that means a potentially strong tailwind for stocks in the second half of 2023.

But that doesn’t mean all of 2023 is going to be market heaven for investors…

The average recessionary earnings decline since World War II is 13%. Assuming that holds true for the 2023 recession, stocks are currently trading at 21X earnings, the same valuation they started the year at.

This is why analysts at Morgan Stanley, Goldman Sachs, and UBS are predicting the 2023 S&P 500 to bottom around 3,000 to 3,400, a 16% to 28% further decline. And most expect to see that happen in the first half of the year.

In other words, based on the economic data we’re facing now, stocks likely haven’t bottomed yet. And the final plunge could feel terrifying for many…

How to Prepare Today

Now, our job is not to time the markets.

But historical data from 1950 to today shows you don’t have to nail the bottom. You can still earn an average 12-month return of 22%, an average three-year return of 37%, or an average 10-year gain of 214% after a market decline of 25% or more.

And the best way to lock in those gains is by owning blue-chip dividend paying stocks today. And picking them up at bargain prices when the opportunity presents itself.

We might be in for a rough start to 2023, but based on the data I cover, we could see a brand-new bull market start to unfold in the second half of the year.

So don’t let fear of some epic stock-market mega crash keep you out of the best blue-chip buying opportunities in years.

And keep an eye on your inbox in the coming weeks. Brad and I are working on an exciting new project that is specifically designed to help you earn income safely through all the volatility we might see in 2023.

We look forward to sharing it with you soon…

In the meantime, check out our Intelligent Income Investor portfolio by clicking here. It contains some of the best dividend blue-chip stocks in the world and can help you earn income through market ups and downs.

If you trust the world’s best companies with your hard-earned savings, you can set yourself up for financial success while sleeping well at night, no matter what the economy or stock market is doing.

Safe investing,

Adam Galas
Analyst, Intelligent Income Daily