In 1989, Billy Joel released the song “We Didn’t Start the Fire,” which chronicled various events over the previous 40 years. From pop culture to politics to economics the song touched on many various aspects of our world. The last year saw a brutal combination of market shocks from disparate aspects of the world, that could probably provide enough material for a worthy successor to this song, even without the pop culture events! As we flip our calendars to 2023, most investors will cheer for the passing of 2022. It was a rough year that saw weakness in almost every asset class. Instead of chronicling what we all just experienced we will instead look forward and discuss our outlook for 2023.


The Economy

Inflation and the response to it will continue to drive overall economic activity in 2023. We believe inflation has likely peaked for the time being as the last two readings of it were both lower than expected. There is always a chance it may come back in the later part of the year, but that remains unlikely. To be clear, we do not think that prices will suddenly reverse course and things will get cheaper. Instead, the rate of price increases will continue to slow as the massive monetary tightening the Federal Reserve has enacted continues to work its way through the economy.


Speaking of the Federal Reserve, they will likely continue their upward pressure on interest rates for at least the first quarter. However, it should be at a lower rate than we saw in the previous year. They may exercise other tools to slow the economy and curtail inflation, such as quantitative tightening[1]. We are of the belief that until the Federal Reserve perceives a meaningful weakness in employment it will continue to slow the economy.


We expect to see economic conditions (including employment) deteriorate during the first half of the year. However, we believe there is a good likelihood of things improving into the second half.


The Capital Markets

In 2023 we expect to see continued volatility in both the stock and bond markets, or as we collectively refer to them, the capital markets. Between interest rate moves, geopolitical uncertainty, and the turning of the business cycle, the first half of the year may be rough. We expect things to settle down towards the middle of the year and, despite economic weakness, the markets to improve into the end of the year.



Two major long-term trends will continue to affect the world in 2023. The first is continued deglobalization as countries continue to try to limit their dependence on other countries to produce goods. Our current system of global trade began after World War II and then went into overdrive with the fall of communism at the end of the Cold War. It will not be unraveled overnight, but we expect to see some significant changes coming in 2023.


The other major trend is one of demographics. In most countries, there are going to be many more ‘retirees’ than working-age adults. This is something we have never seen in history, and it calls into question many of the assumptions we’ve worked under for years. We are lucky here in the United States as a combination of immigration and birth rates have mitigated this somewhat. However, for most of Europe and a fair bit of Asia, this will be a dominant factor going forward. We expect to see countries increasingly trying to address this imbalance in 2023 and beyond.



So, what are investors to do this year given the potential upheaval we may see? A lot will depend on where you are at in your financial journey. For those closer to or in retirement, we will focus on having the appropriate level of liquidity to ideally meet your short-term needs with the acknowledgment that some of your assets are still invested for the long term. For those with longer time horizons, we remain focused on those goals, and we believe that flexibility remains key. c


[1]    Quantitative tightening is an action by a central bank (e.g., the Federal Reserve) to remove liquidity from the economy with the goal of slowing economic activity.


Kevin P. Sullivan, CFA, CFP®, AIF

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Colorado Springs, CO 80906






Opinions expressed in the attached article are those of the author and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Investing involves risk and investors may incur a profit or a loss. Prior to making an investment decision, please consult with your financial advisor about your individual situation.