Morning Brief: Why Did Ordinary Investors Take Such a Hit in 2023?

Following a terrible market that saw equities fall in 2022, many investors anticipate a comeback. However, markets are expected to remain turbulent.

It's critical to stay calm and focus on long-term goals rather than getting caught up in the moment. This is where investing methods like these may help weather the storm and position yourself for a bigger comeback in 2023.

Inflation is defined as a general increase in the prices of goods and services, which is sometimes expressed as an annual rate. It is generated by both demand-pull and cost-push inflation, although a moderate inflation rate is typically thought to benefit the economy.

As a consumer, you may believe that inflation is bad because it causes your money to lose value. However, economists argue that a tiny bit of inflation is beneficial, especially when evaluated at a 2% yearly rate, which the Federal Reserve regards as healthy.

The primary drivers of inflation are increases in the prices of specific commodities, such as oil, which ripple through the economy as an input for various other products and services. However, price hikes can also be caused by other circumstances, such as a disease epidemic or a labor shortage.

Inflation increased in 2023, reaching record highs worldwide and exerting downward pressure on interest rates. Inflation is defined as the increase in the price of goods and services over time, as measured by the change in the consumer price index, or CPI.

The Fed is attempting to control inflation by raising interest rates. Higher interest rates encourage individuals to save rather than spend their money, slows inflation over time.

This implies increased credit card rates, higher mortgage rates, and higher property costs. The good news is that most of these rises have not yet peaked and will certainly reduce by 2023.

This should let customers keep part of their money as long as possible, giving them a greater opportunity of getting the most out of it. This is especially true if you're a first-time house buyer because a stronger economy and more inexpensive mortgages will likely allow you to maximize your buying price.

Many corporations have raised their pricing in the previous two years, boosting earnings. However, margins are beginning to contract, which may assist in slowing the rate of inflation.

While it is very early, we expect corporate profits growth to decrease to around 4.0% in 2023, down from 4.9% in 2022. This is mostly due to lackluster industrial activity and ongoing inventory adjustments in key sectors of the economy, which will almost certainly result in moderate decreases throughout 2023.

While profit margins are significantly associated with labor expenses, we anticipate that these dynamics will eventually push corporations to reduce profit margins. This is most likely to happen in the second half of 2023. Meanwhile, investors should continue to choose high-quality firms with favorable earnings revisions, good profit margins, and stable balance sheets.

The 2022 market sell-off knocked billions off the value of risky and non-risky stocks. It also had a significant impact on the retirement plans of ordinary investors.

Despite the suffering, many investors stay with their investments, even reinvesting in the same companies they bought when the bear market began. According to experts, this might be a wise decision in the long run.

According to Gerry Frigon, president and CFO of Taylor Frigon Capital Management, investors should focus on growth-oriented firms that are likely to prosper during a recession. This method will assist in limiting volatility and drawdowns while also establishing a portfolio of excellent equities for the long term.

Stocks in rate-sensitive sectors, such as financials, real estate, and growth-oriented technology, tend to lag in the six months preceding a recession. Still, companies that expand quicker, such as materials producers, industrial enterprises, and healthcare corporations, do well.