Stock Market in 2023: What to Expect
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Here's your money briefing for Monday, January 9th. I'm J.R. Whelan for The Wall Street Journal. The new year began with several days of gains in the stock market, but the wounds suffered by people's portfolios and 401k accounts last year are still fresh.
You know, we're in a strange situation where buying risk assets following a sell-off, which is a wonderful strategy to follow historically.
is a little bit more uncertain. So what can investors expect in 2023? Sebastian Page, Chief Investment Officer at T. Rowe Price, will join us with a look ahead after the break.
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If you've got a stock portfolio or 401k, you are probably happy to see 2022 come to a close.
What caused the sharp market declines in 2022 and how did rates drive that change?
So after a bruising year in the markets, what can we expect in the first part of 2023? Let's bring in Sebastian Page, Chief Investment Officer at T. Rowe Price. Sebastian, thanks for being with us.
Thank you, JR. Thanks for having me.
So, you know, Sebastian, if you've got money in the market, 2022 was not for the faint of heart. It was just about this time last year we saw indexes hitting record highs. And then by the end of the year, the S&P 500 had fallen 19%. What changed the complexion of the market so significantly?
2022 was a crazy year in capital markets. You know, if you think about regime shifts, it was a major regime shift. And what drove the drop in the S&P 500 and the drop in bonds mainly was a rate shock. The Fed brought rates from near zero to 450 basis points in about nine months. And that really shook markets. And that was not expected. Now, you mentioned stocks were down 19%. That's pretty bad. Worst stock market since the global financial crisis. But for bonds, the aggregate index was down 11%. That is horrible. That in 2022 is the worst year for bonds basically in history that we can get.
Yeah, you know, we've seen inflation tick lower in recent months, but it's still at levels not seen in several decades. And that spooks the market. What's your take on where inflation is headed in 2023?
I think inflation has peaked. It will be sticky on the way down. My guess is we end the year at about 4% inflation looking back for 2023. And there are many factors in here, but going Goods prices are coming down. Commodities are hard to predict, but services, when you look at the housing component, are definitely coming down. Now, this is a bit technical, but we're going to have a problem because we're forecasting housing prices to be down 7% this year. But we're also forecasting that shelter inflation is actually going to be up 5%. And that's because shelter inflation is based on rents, which renew only once a year. And there are other lags in the data. So that's a bit complicated. But for all your listeners watching inflation numbers, this is going to actually keep inflation a bit sticky, but it's kind of artificial.
And whenever we talk about the effects of inflation, it leads to speculation about economic weakness. How likely is it that we could see the economy fall into recession?
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