We’ve almost entered into 2023! In today’s Steady Investor, we dive into key factors that we believe are currently impacting the market and what could be next for the markets in the new year, such as:
U.S. Housing Slump May Help the Fed’s Cause in 2023 – The Federal Reserve desperately wants inflation to come down. A slump in the U.S. housing market may help. Following a surge of household formation in late 2020 and throughout 2021, activity in the housing market has cooled, particularly as the Federal Reserve has risen interest rates in an effort to battle soaring inflation. The surge in home prices—which saw the S&P CoreLogic Case-Shiller National Home Price Index jump 45% from January 2020 to June 2022 and apartment rents soar—has arguably now run its course. The Fed raised rates seven times in 2022, and the end of quantitative easing removed a significant source of demand on the long end of the interest rate curve. That saw mortgage rates jump from around 4% in March to 7% in the fall, with rates now having settled slightly higher than 6%. This increase results in a significant jump in median mortgage payments that homebuyers are making, to the tune of +43% from January to November 2022. The result is that buyers have left the market in droves, and sellers are holding onto properties given their locked-in low-interest rates. An easing of home prices and a plateau in new household formation has stifled home prices and also led to the supply of new apartments hitting a 40-year high, both positives in the inflation fight. Housing accounts for about 30% of the consumer price index measure of inflation, and about 1/6th of the personal-consumption expenditures index, which is the Fed’s preferred measure.1
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Here’s How to Better Navigate Your Investments in 2023
2022 has been a challenging year for investors with a bear market, relentless volatility, and persistent inflation making it difficult to generate positive returns.
It’s important for investors to be prepared for both the good and bad in the market. In our just-released December Market Strategy Report, we take a look at:
If you have $500,000 or more to invest and want to learn more, download your guide today!
Download Our Just Released, “December Market Strategy Guide”2
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The End of the Negative-Yielding Bonds Era – In the aftermath of the 2008 Global Financial Crisis, central banks around the world cut interest rates to the zero bound in an effort to spur economic activity. That brought a flood of negative-yielding debt – where investors pay money to own a bond – across many developed countries in Europe. At its peak two years ago, there was $18.4 trillion of negative-yielding debt globally, a staggering figure. But the arrival of inflation has shifted the tables, with central banks around the world – even the Bank of Japan – now raising rates and bringing bond yields across the yield curve back into positive territory. The European Central Bank’s benchmark rate has climbed from -0.5% at the beginning of 2022 to 2% today. The backdrop of negative-yielding debt arguably helped fuel a years-long rally in risk assets, but now that positive yields are re-entering the market investors have more options for where to park money. The Bank of Japan remains the only developed country with negative-yielding debt, with its shorter-term notes with maturities of a year or less slightly negative.3
This New Year, Invest In…Yourself – Investors naturally think of wealth building in terms of accumulating assets and earning returns on investments in stocks, bonds, real estate, and the like. But studies show that there are also big returns to be made on a different type of investing, what economists refer to as ‘human capital.’ Beyond growth to be earned in the capital markets, there are also three categories of growth people can pursue in their own lives: professional, personal, and health. Much like we make an effort to check in on our financial lives and the performance of an investment portfolio, so too can we create stepping stones for achievement in careers, relationships, and physical and mental health. Another parallel between personal wealth and financial wealth is the need for diversification. Just as an investor should not overcommit to a single stock or asset class, you should also not put too much time and effort into professional growth at the expense of personal and health growth. Also, just like investing, personal wealth should be framed as long-term goals with short-term checkpoints along the way.4
Prepare Your Investments for 2023 – As we look ahead to 2023, it’s important for investors to be prepared for common market challenges, such as persistent inflation and volatility.
In our just-released December Market Strategy Report5, we take a look at the key factors that are influencing the economy and markets as this year unfolds. We also look at:
If you have $500,000 or more to invest and want to learn more, click on the link below to get your free report today!
Disclosure