Mind on Money: Preparing for 2023, recession or not

Mind on Money: Preparing for 2023, recession or not

What if we held a recession next year and no one came? At this point I feel like the pending 2023 recession has been the most heavily forecasted economic trend in history. All the economists I follow on a regular basis, as well as just about every CEO I see on CNBC in the morning, has been prognosticating about the hard economic times ahead for months. Heck, even my wife started asking about a recession coming last July.

The narrative is so logical, and quite frankly, even so seductive. We all know the Fed and government poured money into the economy during the pandemic as the world got turned inside out by lockdowns and COVID caused supply chain disruptions. Most of us got government checks in the mail, and experienced products we take for granted being unavailable for immediate acquisition, taking weeks or months to get. Then because of all this monetary expansion and supply chain disruption, prices started to go up, and broad-based inflation ensued. We all had to suffer through $5 gas, and grocery prices going through the roof. Something clearly had to be done.

So, the Federal Reserve did what it had to do, with its own mess to clean up and a federal government unable to competently address the problem and tighten its belt, the interest rate hikes began. Thinking back on my entire career I can’t remember a time when the Federal Reserve raised interest rates so aggressively as we have experienced in the last year.

Home buyers and businesses borrowing for expansion were traumatized by the higher rates as savers begun to be delighted, finally after 14 years finding an alternative to investing in stocks as they became able to obtain actual interest on bank cash and conservative investments. The new higher interest rates are the medicine we all know had to be swallowed. We were repeatedly warned about the consequences of the COVID time policies, for anyone not ready for the recession at this point it’s on them. All this started a year ago, let’s go. And then, nothing.

The most traumatic part of any recession is the rise in unemployment. The U.S. economy, however, continues to function at a level many economists consider to be below the level of full employment, meaning more people have jobs than even should.

The housing market was surely going to roll over, right? Well, sort of. My oldest daughter is selling her house in Indy to buy a bigger one down the street. A month ago, the showings stopped, but in the last week the shoppers are back. Sure, she had to drop the price a bit, but come on, she and her husband are still set to realize a hefty profit on a house she’s only owned for a few years. Price drops offset interest rate hikes, but the market appears to be functioning. Anecdotal I know, but under every economic statistic is multitudes of anecdotal stories.

Many of my clients are still buying cars and planning bucket list trips. While it’s certainly hard for even well managed portfolios to not be down some in 2022, it was also equally hard to not have made money in 2020 and 2021, so despite lots of questions about recessions, life continues to be lived.

Does this mean I am bucking the trend, and calling for economic sunshine and roses in 2023? Not exactly. I am a creature of economic observation with a long frame of reference to draw from. A recession does seem to be the logical expectation for next year. The stock market continues to be priced at an average multiple of earnings on the high side of the historical range, and for the first time in a long-time, stocks have some legitimate competition from bonds and CDs for investors seeking return. It makes sense that the economy and stock market would cool off a bit as it digests post COVID economic policies, and I believe after being warned repeatedly Americans will be ready if things settle out lower.

I’ve also learned, however, that markets and economies are seldom easy, and never so predictable. With this in mind, I will approach 2023 with a bias toward playing defense. Willing to explore risks and opportunities, but somewhat stingy about pulling the trigger.

I will enjoy the return, at long last available, from more conservative investments as I watch the recession prognostications emerge or not emerge from the pandemic fog. In a defensive stance I plan on preparing for an uphill battle, providing conservative advice, and making well vetted decisions. But I also will remember the best defense is a good offense, and from that perspective I will try to remain ready for any opportunities that may present if the predictions of recession do ultimately come to pass.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.

Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.