2023 Market Outlook

2022 Was Quite the Turbulent Ride

Inflation, central bank rate hikes, oil prices, supply chain disruptions and the Russia-Ukraine conflict cast a long shadow on markets, causing extreme volatility and dominating financial headlines 24/7. The late-to-the-game interest rate hike response required in order to tame inflation, which as of yesterday’s December Consumer Price Index (CPI) announcement of 6.3% in Canada is finally showing signs of cooling slightly from June’s painfully high 8.1%, has all but dashed hopes for a “soft landing” into this new year. Having underestimated the persistence of inflation, it now appears the dreaded R-word, recession, will be the economic theme for 2023.

With increased interest rates, the impact is only now working its way through the financial system; stocks, bonds and real estate have all significantly declined in value over the past year, the ability to service debt is being tested as mortgage renewal and rental rates are shocking to monthly cash flows, and job cuts are forecasted by larger corporations across the globe.

However, the year 2022 was an outlier, because both bonds and equities performed poorly.

Brighter Outlook for 2023

There remains too much uncertainty to predict the depth and length of any economic downturn, but looking to similar periods throughout history where interest rates were rising due to inflation and recessionary conditions were prevalent, we expect markets to stabilize at some point in 2023.

Higher bond yields and lower equity prices provide for a much more compelling investing environment going forward. Central bank policy, which operates with a lag, is likely to weigh on the economy into 2023, but equity valuations have normalized and the potential returns of several asset classes offer attractive opportunities. Corporate earnings in general have remained resilient and supply chains are finally moving again.

Areas of Opportunity

As investors, we all want to buy low, which means taking advantage of dips in sectors/areas of the markets that are currently out-of-favour, and therefore trading at a discount. Think of it like stocking up on a whole bunch of household items from the grocery store that you will need to use in the future, that happen to be on sale today, so you should take advantage of the discounted pricing and buy in bulk!

Now Selling at a Discount…

• Tech Sector – it’s been pummeled in the post-Stay-at-Home era, after being overvalued. But, do we really think Apple, Amazon, Tesla stock, etc. will not ultimately recover?
• Consumer Discretionary Sector – down even more than Tech due to recessionary fears
• Communication Services Sector – the entertainment and media industries have been hit even worse, and for the same reason
• Fixed Income, i.e. bonds – increased interest rates means the potential for investor gains when yields come down as the economy softens

How Do You Take Advantage?

1. Factor ETFs: various factor strategies have consistently outperformed their respective indices during periods of rising rates, inflation, and volatility.
2. Outperforming Portfolio Managers: managers whom consistently provide excess return over their benchmarks net-of-fees, and do so by capturing less of the downside during market downturns

Our Enhanced Investment Product Offerings

We’ve significantly enhanced our investment product offerings to now include Exchange Traded Funds (ETFs).

Our investment philosophy remains the same as always: hire the best investment managers who are able to cover the globe and focus at least as much on risk management as achieving high returns, while remaining sensitive to management expense ratios – the lower the better for you, all else being equal. In a nutshell – Parkhouse Financial strives to offer the best possible service at the best possible price.

Looking for a 2nd Opinion Sounding Board?

I offer complimentary, no-obligation 2nd Opinion Reviews of investment accounts. It’s a complimentary service that people find to be of real value.

And, if you would like to discuss my strategy to take advantage of the current markets or to discuss a tailored strategy for your situation I’m here to help.

Simply Click Below to book a 30 Minute Phone Call directly into my calendar.

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The Highest Standard of Professional Investment Care
You Deserve It. We Provide It.

Nathan Parkhouse, CFP®, CIM®, FMA
Founder & Financial Advisor
Parkhouse Financial