What’s in Store for 2023 With the Current Volatility in the Stock Market?

With the S&P 500 down at about 20% and the Nasdaq down at almost 30%, a lot of questions have been flying around about what’s causing the declines and volatility in the stock market. Many have said the market is just trying to balance itself after the spike during the COVID-19 period, while others have said the downtrend will remain for a long time.

Inflation is also at an all-time high—

at around 8%

—largely due to the Russian-Ukraine war. Investors are trying to find a hedge to protect themselves by investing in predictable income sources. The Federal Reserve is doing everything possible to reduce the impact of inflation, which includes raising interest rates. But for how long?

With these many speculations, what does it mean for the year 2023, and what are we likely to see put in place going forward?

Justin Zacks

, VP of Strategy at Moomoo Technologies Inc., shares insight about the market, how investors are adapting, and what’s in store for 2023.

Justin’s Thoughts: 

“I’m here to talk to you about the current volatility in the stock market, how investors are adapting to the current environment, and what may be in store for 2023. The stock market’s down about 20% for the year so far, and a lot of that decline has to do with the Federal Reserve’s aggressive monetary policy. The Fed has been raising interest rates at a very rapid pace to quell inflation that is at 40-year highs.

All those stock market declines came in the first half of 2022. The markets have actually been in positive territory over the past six months due to the general perception that inflation has peaked and was moving lower, and that the Fed was almost done raising, hiking rates and would be ready to cut rates sometime in 2023, but since the Fed meeting on Wednesday, investors are coming to the realization that inflation is nowhere near the Fed’s 2% mandate.

And although the Fed may stop raising rates in the next few months, they will likely pause rates at these very high levels for the entirety of 2023 to let monetary policy work through the system.

That is likely going to lead the job losses low or no economic growth and lower profit margins for companies in 2023. That could mean a continuation of some of the investing trends and shifts we saw in 2022. Investors are looking for safety and they’re getting defensive. They’re also looking for ways to hedge their exposure to inflation and add predictable income through high dividend-paying stocks.

Energy stocks are one of the best inflation hedges, and it’s not surprising the energy sector was the best-performing one in 2022. By a large margin. The income-producing utility sector in the safe haven consumer staple sector is the next two best-performing sectors. Growth stocks like technology have fallen out of fashion due to high valuations, higher interest rates, and lower growth expectations.”