Investment Advice for Uncertain Times

TCB Insights

Investment Advice for Uncertain Times

Wealth management experts on how to make sense of current market volatility.

February 21, 2023

TCB Insights logo Economic indicators are painting a very complicated picture. After a long bull market, the S&P 500 Total Return Index fell 18% in 2022, and the Dow Jones Industrial Average slid nearly 7%. One reason: The Federal Reserve raised interest rates seven times during the year as it sought to slow inflation (which has cooled a bit) and loosen the labor market (which remains stubbornly tight).

In addition to the low unemployment rate, many economic measures appear fairly strong. Much to economists’ surprise, GDP grew at an annualized rate of 3.2% in the third quarter of 2022. Despite inflation, consumers boosted their spending 6.7% for the 2022 holiday season over 2021, according to Retail Dive. And the S&P 500 and the Dow both regained some ground in the fourth quarter.

Given the mixed signals, investors are feeling a little discombobulated. News is swirling about a softening housing market, more interest rate increases, even a recession. TCB asked local experts to provide their take on investment strategies in 2023. There’s no one-size-fits-all approach, but they do offer some insights into managing your money during what looks to be a notably unpredictable year.

Pilar Oppedisano

Market Manager for J.P. Morgan Private Bank in Minneapolis covering Minnesota, North Dakota, and South Dakota (Source: Outlook 2023: See the potential—Weaker growth, stronger markets)

What can investors expect in 2023?

Higher interest rates are meant to slow the economy, in part by discouraging companies and households from borrowing. In 2022, investors experienced high inflation and an aggressive rate-hike cycle to combat elevated inflation. While inflation remains high, we see a subtle shift in monetary policy with many central banks across the globe slowing the pace of tightening. We expect the Fed to follow suit in 2023 with the hiking campaign likely to come to a close by the end of the year.

We expect market volatility to continue in the first half of the year, but expect equity markets to end the year higher.

As we look ahead to 2023, while we think a U.S. recession is likely on its way, we don’t think it will be a crisis due to companies and households having more in the bank and being in a better financial position. In fact, companies and households have a better surplus than they have prior to any recession since 1950, and we think they are better equipped to weather a recession.

Jeanne Krigbaum

Chief Wealth Planning Officer 834, a Division of Old National Bank

What should investors nearing retirement be thinking about?

Avoid overreaction. According to the U.S. Census Bureau, the average length of retirement is 18 years. That’s a long time horizon from an investment perspective and gives investors nearing retirement plenty of time to recover.

While every person’s situation and goals are unique, here are some investment considerations you may want to discuss with your wealth advisor:

Fixed income: Rates are at levels not seen for nearly 15 years and interest-bearing securities are finally rewarding conservative investors looking for income.

Equities: The stock market suffers when interest rates go up. Discounted cash flow models project lower present values for stocks, and debt is simply more expensive for corporations looking to borrow. However, some optimism may be warranted as we are nearing the end of this rate-hike cycle.

Cash: Distressed investors looking for a reprieve in 2023 may want to sit on a larger cash cushion and enjoy higher rates.

Also, remember that your approach to investing should always align with your overall financial goals. If you haven’t revisited your financial plan, now is the time.