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The Stock Market in 2022: Our Review, and What To Expect in 2023

by Brandon Hobson, CFA®, CPA | February 24, 2023

Let's review the 2022 stock market. Last year was a winning year for the diversified portfolio. International stocks outperformed the U.S. stock market, despite the U.S. dollar strengthening. Short-duration bonds outperformed long-duration bonds due to the rapid rise in interest rates. Quality, high-dividend-paying stocks outperformed the overall stock market by a wide margin. 

Inflation raged across the globe in 2022. Central banks hiked rates to try and tame inflation/demand. The rate hikes appear to be working, but there are signs of a global recession looming because of tightening. A deep recession is looking less likely now as the base case looks to be a mild recession.

Quality stocks with immediate cash flows have outperformed during past recessions, and they should continue to be a winning strategy in 2023.

What do we expect this year?

Expect more of the same in 2023. Volatility should remain high, with uncertainty around interest rate hikes and a global recession looming. International markets should benefit from a surge in demand with China reopening. However, demand from China could create more inflationary pressure if supply lags. The negative impact of inflation could more than offset the economic growth spurred by reopening. This is something to keep an eye on in 2023.

International stocks could continue to outperform in 2023 and into the future. U.S. stocks have outperformed for many years. Global stocks have low valuations and much ground to make up. International stocks also tend to have more quality characteristics that perform better during recessionary periods, like higher dividend yields and cash flows.

The fed is unlikely to change its tune on inflation until there are clear signs of disinflation. The fed wants a trend, not a single data point showing inflation is subsiding. This will take time. As a result, there is a low probability of rate cuts in 2023. It's more likely that hikes will continue through the first half of the year. However, the size of rate hikes may decrease/pause so that previous hikes can take hold. 


This commentary contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this commentary will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

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