In this podcast we take a look back at the year that 2022 was and identify some factors moving into 2023 that may play a role in the markets and economy.
In this podcast we take a look back at the year that 2022 was and identify some factors moving into 2023 that may play a role in the markets and economy.
Welcome. My name is Eddie Thomas, this is brought to you by wealth management services in Hershey PA. And this is the recap of what 2022 was, and the Look Ahead into 2023. And what we'll be doing is we're just going to talk about some factors that played a role in the stock market and economy in 2022. And then we'll look at into 23, and talk about some factors that might play a role in the year ahead as well. So let's jump right into it. And the 2022, we really had three major themes. Now, of course, you'll see headlines and articles every day of the year about something new, but three major themes kind of played their role in 2022, and brought us a few that we had in both the economy and stock market. And those are the midterm elections, global unrest, and inflation. Now, we'll tackle those in those order. So the first one being midterm elections? Well, we've had pretty much every time there's an election cycle is a lot of uncertainty. And then any political uncertainty, not knowing what party is going to win what office leads to a lot of stock market and economy uncertainty, because businesses in the market don't really know what the rules are, we don't know if there's going to be any policy changes. We don't know if there's going to be any spending changes. We don't know what this really means for businesses going forward for consumers going forward. And how do we account for this when we move on, and we see what happens on the other side of things. So a lot of this uncertainty that midterms brings in any election cycle brings, will have a negative effect on the stock market leading into that, because people are a bit concerned about what the outcomes might be without knowing them. At the time, they just kind of panic and say, well, I'll just wait until this kind of settles itself and then come back into the market. If I like what the reaction is we're now any year, in a midterm election year, the s&p 500 only averaged 0.3% return. So we see historically, that midterm election years have a much lower performance than other years that we've had. And we'll get into what the year after midterms look like. And the Look Ahead of 2023 in the second part of this video. But that first one, the first impact we've had was definitely the midterm elections, we came out came off a big President presidential election in 2020. So to move into 22, like we did this year, and have one party hold all three offices, investors, and people were just kind of wondering what was that going to look like after the midterm elections. So that was the first major role, midterm elections, putting a lot of uncertainty in the markets, which in turn, put a lot of uncertainty a political landscape, a lot of uncertainty, the economy, uncertainty and consumers. So that kind of had a ripple effect that it does every year, like I said, Only 0.3% Return on the s&p during midterm elections years, which is significantly lower than the seven to 8% average that you normally see from the s&p 500. So that's one. The second is global unrest. And there's two major themes and stories that came out of this. And one, of course, is the Russian Ukrainian war. Now, I don't think anybody had coming into 2022, that that was going to be a factor. I don't think anyone anticipated it, that Russia was going to invade Ukraine and try to take over that country as their own. And obviously, it's still ongoing today, a number of months later, as Ukraine is pushing back, and we're seeing where that war is kind of falling day after day and seeing what the progress is. Now, the reason that impacts us here in America from the stock market from the economy, is because anytime there's a war, it's a lot of uncertainty, just like the midterms, but different uncertainty, kind of wondering, okay, what's our role in this? What's going to happen next? What's the domino effect going to be? And then especially when it's someone like Russia, when we already have a little bit of a tension relationship with them, and they control a lot of the oil and gas and energy that gets into Europe? There's a lot more questions that come into play of Okay, how's this really going to look going forward? And you saw what we saw was right, when that war kind of kicked off, and you saw the invasion, you saw the market have a really bad reaction to that and sell off. Reason being because War brings more uncertainty than anything else, like I said, and I think investors at that point, just wanted to see, okay, this is happening, the initial panics through. Now, from here, we know what's happening, what's going to happen. And it's been kind of waiting to see where those dominoes fall and where those cars lie. And we've seen good headlines, you've seen bad headlines, and you're still going to continue to do so. But that was a major factor in 2022 of the uncertainty that war brings into play and especially in invasion, that we haven't seen something like this in a long time. So the market had to kind of digest that. Now, the second one is China's euro COVID policy. And this is a little bit different of an impact than the Russia Ukraine war hat. But the reason this is impact Lesson 2022 is because a lot of our companies here in the US, a lot of companies throughout the world rely on China for their manufacturing, whether it's Apple creating iPhone, whether it's Microsoft, creating laptops, whatever it might be, if it's a consumer product that's in people's hands, there's a decent chance that China has a role in manufacturing either the parts and pieces or the total product for consumers to buy. So when China's going through their zero COVID policy, what we're having is cities and towns shutting down, because China's telling everyone to stay inside don't move, we're going to pretty much we don't want any COVID at all within our country. Now, that's a great goal to have, unfortunately, what that does for well, their citizens there, but then also our companies here is it shuts down all the manufacturing plants that shuts down pretty much their economy day to day. And in turn, they're not able to make what they would have and produce and ship what they would have before. So the global economy and our economy as well. deals with that in saying, Okay, well, if our companies can't get the products that they were going to sell, if Apple can't get enough iPhones, on the store shelves, what's that going to mean for profits? What's that going to mean for the company going forward? And how are they going to adjust? So the big one was from April to June when China really shut down and then ever since then they've been shutting down opening, shutting down opening, it's been this back and forth. And now it looks like they're finally opening again, slightly. But what does this mean going forward? And how much does this really disrupt the supply chain of things when we already saw the supply chain really disrupted in 2020. So we came into 22. And we are still seeing some major supply chain disruptions. The market really didn't like that at all, because or neither did the economy. Because the consumer economy, the ability to buy these goods was kind of waning, because they weren't on shelves, they weren't in front of us. And we saw this unused cars, cars, impossible to get new cars on the lot over the last couple of years, we're finally starting to see them come back online. But the supply chain pretty fragile right now. So any sort of change, like a zero COVID policy in China puts the market a little bit at an uneasy point. And we see that reaction from there. So those are the two global unrest, geopolitical issues we've had this year as the Russia Ukraine war, and the zero COVID policy that China has implemented and continue to implement. Now the third one, the biggest factor, arguably is inflation. Now, you can't go day to day without seeing a headline for inflation. And the reason being is because it's the highest we've had in 40 years. And the year over year, inflation peaked in June at 9.1%. Now we're sitting here today, and the latest numbers that came out for November in the latest report in December shows that it's down to 7.1%. So that's a really big deal and a good jump. And we saw the market react to that. So what's been happening because of inflation? Well, we saw over energy prices increase and energy is a big driver of inflation, you saw that houses were going for much, much higher that was lending into inflation. And what the Fed did on the other side of this was okay, we're gonna raise the raise the Fed funds rate, which in turn raises interest rates for credit cards for car loans for mortgages went from 3% to 7%, for a 30 year mortgage, all in an attempt to slow down the consumer slow down the economy, and make sure that people aren't spending as much when inflation is already pretty high. If you do if the Fed is able to do that, which is what they've been trying to do, inflation will tick down like we've been seeing, because we won't spend as much money therefore not as many goods will be sold, therefore, the prices will slowly come down, the economy will slow down. So that's what the Feds been trying to do with rising interest rates. Now each time they do this, and every time we have an inflation report, the markets been on edge. And for the first six months of the year, you only saw inflation ticking up. So every time that was happening, the market was saying well, clearly we don't have a handle on this. And selling off. Now in the last six months have we seen it come down? Inflation is coming down pretty routinely at this point, not by a whole lot but still coming down. And the market reacted well, but on the other side of that the Fed still been raising interest rates. So the markets in this in between of saying okay, are we on the other side of inflation? Do we have it solved but the Fed is saying they're gonna keep raising interest rates? Where's the middle part of this? And when do we get to a point where the Fed stopped raising interest rates? And the Fed said, That's not until next year? So that's the next the biggest part is when is that point where we stop raising interest rates and inflation continues to come down? And in the meantime, what's gonna happen to consumers? What's gonna happen on employment, what's going to happen to businesses? That's a big question going into 2023. But in 2022, the idea that inflation was so high and still remain tie was a big factor in the economy in the markets and consumers like I'm sure we all experience when filling up at the gas station or going to the grocery store, or even now when we're Christmas shopping, things cost a little bit more than they did. And because of that the market and economy has taken a little bit of a backseat this year to that into those heads. Right now, those are the three main factors and 22, the midterm elections, causing unrest, the global unrest that has put a lot of people on edge for the past year, and then the inflation that has just put a lot of money out of consumers pockets into the economy, because gas because groceries because everything else costs a little bit more. But what are we looking into 2023? What does the next year look ahead? And what are we looking at factors wise, at least a couple of them? And how do they branch off what we just saw this past year? Well, we'll start with the midterms, again, because the three are midterms, what happens with the global unrest, and then do consumers continue to show strength even through inflation. So again, starting with the midterms, on this side of things, what we have is the year after midterm election, the s&p 500, average is 15.1%. Now that's not to say it's definitely going to have that because you have years when the when the s&p performs incredibly well 30% or more, and then you have yours when it doesn't, maybe two to 3%. So and at the end of the day, it averages at 15.1%, historically, significantly higher. And then the 0.3% in midterm elections here that I kind of said earlier. So what we'll have, ideally, is the political stability that we now have, because we know what each presidency House and Senate and what parties hold them with the Senate and the presidency, being democratic, the house being Republican, we know that for the next couple of years, the market is going to like this until the next presidential election. Because there's no big policy, there's no big spending, there's no big changes, like I said earlier, at least not with some back and forth, and some meeting in the middle of the two parties. So the stability that you have gained politically puts a lot of stability back into the markets back into the economy, because businesses knows what know what the rules are. Investors know what the rules are consumers know nothing big is going to change barring some sort of meeting in the middle. So ideally, going into next year, you're hoping because of midterms are settled that the market has a pretty good year like it has historically because that certainty is back in the market. And we will see. Now second, what happens with the global unrest. It's hard to say it's really actually impossible to say what's going to happen. Ideally, like to see the Russia and Ukraine war get wrapped up pretty, pretty soon here. And I think a lot of people thought it was gonna be wrapped up pretty soon after it started in the beginning. And we're seeing is dragging on. And you're hoping that going into the winter months and into next year that this kind of wraps itself up. But it's very, very tough to say when it will, if it will. But on the other side of that what we have is those your China's zero COVID policy, like I alluded to earlier, is you're starting to see China start to loosen our grip a little bit. And the reasons why is because you have a lot of unrest in that country of people saying, hey, we need to get back out, we need to start living again. And then the other side of it is so much of China's economy is built on the manufacturing side of things, that when you continuously shut those fact those cities down in those towns down, you're not doing that manufacturing, you're slowing down your own growth. So we're starting to finally see them waver a bit on that because they don't know what to do. And they want to continue to grow, but they don't want COVID. So there's a lot more question marks on that one as well. But that one seems to be wavering a bit in a good direction that China's loosening their zero COVID policy, and letting their citizens and their towns and their cities open back up and live and kind of operate as normal, at least a little bit more normal than they had in the last couple years. But like I said, the other one, Russia and Ukraine is still difficult to know when that will solve itself and what fashion. And we're just hoping for the best result. When that does resolve itself and declares that it's over. I think we'll see the market react pretty well to that because it's one big piece of uncertainty kind of out of the way. And now we just deal with Okay, what does the cleanup what does the next stage of this look like? Again? Ideally wrapped up pretty quick there. So third one inflation, and how do consumers respond to continue to respond in 2023? Well, for the past couple years, consumers have had an unbelievable amount of savings throughout COVID. Just like anyone else, we've been able to save a ton because we weren't doing anything, you weren't taking trips, you weren't going out to eat, you weren't going to the bars you weren't going to go to I mean, you weren't doing these things as much. So what happened was consumers save a ton of money. And now for the past two years, we've seen that now the consumers are spending that money. So I think consumers are still going to prove to be pretty strong, even with higher interest rates, even with mortgages being more expensive with car loans and credit cards and all those interest rates being more expensive, or just higher, because consumers have so much savings to continue to spend. And we saw this one black friday online shoppings netted like $9 billion alone, you see that consumers are remaining strong. So what does that mean? means companies are going to continue to do pretty well. Now you'll have some earnings that are missed throughout the next couple months because that's how it goes by For the most part, I think they'll continue to do pretty well, at least I hope. And the consumer will continue to show strength. What ideally happens is energy prices continue to come down, which brings down inflation pretty significantly. And I think what we'll start to see, because mortgage rates are so much higher is you're going to start to see some stability and maybe even decline in housing prices, which will bring inflation down as well. So we think going into next year, as far as inflation is concerned, you're still going to see that number come ticking down. How fast I'm not sure, it's hard to tell. But you'll see on the other side, the Fed continue to raise interest rates to a point until they're comfortable. Now, no one's really sure as to when that's going to be. But if inflation continues to tick down from lower energy prices from our housing prices, and that trickles its way through the economy, it might be sooner rather than later, it ideally is, and you'll see inflation come down. So I think next year, we're gonna start to see it come to a point that the feds comfortable with it, consumers are comfortable with it. And you start to see all the way through if that we've had in the last two years really start to matter. Because now that inflation is coming down and wages have gone up, you start to see the consumers with even more buying power. And again, that's ideally going to work its way in through 2023, maybe in 2024. But it's definitely a factor that will be at play. And we think that you'll start to we'll continue to see inflation on the path of coming down slowly but surely. And that'll lend itself pretty well to market today continues to do so in the Fed has some pretty positive statements based on that. So overall, what are we looking at? We're looking at hoping the midterm election results put some stability back into the markets and consumers and investors knowing that we know what the next two years is going to look like. We're also looking at hoping that inflation continues to come down. Because of lowering energy prices, ideally, because housing prices come down that helps inflation. And on the other side, consumers continue to show strength because we have so much savings. And because that wage growth in the past couple years continues to help out consumers on that side of things. And then the other side of it is just hoping that global unrest kind of assault itself in the next year or so. So if those three things kind of fall our way, as far as investors are concerned, we think that it's going to be a pretty good year, I'm pretty positive. Again, time will tell. I think a lot of those things are going to figure themselves out here in the next couple of months. So ideally, we see it working itself out and 23 but that was the recap of 22 with the midterm elections look global unrest and inflation having the biggest impact on the stock market and economy. Going to 23 We'll have midterms that are settled, ideally giving certainty of global unrest, ideally coming down and solving itself and inflation coming down as well and, and giving us more confidence in the market and economy. So thank you for listening guys. Again, my name is Eddie Thomas, brought to you by wealth management. I hope you guys have a good day. Thank you. Securities offered through securities America Inc. Member FINRA slash SIPC. advisory services offered through securities America advisors Inc. Wealth Management Services and securities in America are separate entities. The opinions and forecasts expressed are those of the author and may not actually come to pass. 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