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Goodbye 2022 and Hello 2023

What Was and What’s Next 

Each year human ingenuity attempts to make our world better. The year 2022 was no exception, with:

  • More than 20 percent of US energy production coming from solar, wind or hydro
  • Germany placing the world’s first hydrogen powered trains in service
  • NASA giving us a detailed look at distant galaxies
  • Alzheimer’s disease becoming partially treatable
  • Hair follicles grown in a lab for the first time 

While changes and advancements are constant, our economic cycle does not share that linear momentum. Global markets for both stocks and bonds found significant negative pressure in 2022. Stocks fell as inflation peaked and earnings stalled, bonds fell as the Federal Reserve sought to combat high inflation by raising interest rates at a record pace.

As 2022 unfolded, it became the perfect storm of limited supply of goods and ample supply of money due to financial stimulus overhang, along with high consumer confidence and demand.  The US economy was robust, employers couldn’t find employees, wages were growing, and price of many things skyrocketed.  


While all this activity seemed like great news -- and for many businesses it was -- investors recognized this momentum was unsustainable. As promised, the Federal Reserve stepped in and began to put the brakes on our economy essentially trying to slow economic growth and quell inflation. By June, the Fed and investors thought they hit the mark only to discover in July that much more needed to be done.  


As 2022 drew to a close, there were significant increases in interest rates from the Fed – mortgage rates went from 3.35% in January to 6.5% in December. These rate increases were aggressive and unprecedented, and we will see the results begin to unfold as we enter 2023.

Markets in 2022 were not spared from all the uncertainty of our economic cycle. Stocks and bonds, measured by major indexes, were down around 18% and 12% respectively for the year.  Thus, 2022 was one of those investment years that all investors hope not to repeat. 


Here at Charter Oak, we were actively managing client portfolios and meeting with our clients throughout the year and took advantage of many opportunities to harvest losses, right up to year-end. Congress was also busy at the end of 2022 and passed the Secure Act 2.0. Like every 2.0, this is a major overhaul, and the changes will impact the way Americans save and plan for their financial future. We will write more about the Secure Act 2.0 later this quarter.  


What to Expect in 2023 

While the data is quickly materializing, 2023 is looking much better for investors and our economy than it did in 2022. Stocks are showing signs of recovery and bonds are now paying in excess of 4.5 percent annually – numbers we haven’t seen in over a decade. U.S. inflation data showed additional easing in December, its sixth straight month following a June 2022 peak. Unemployment is also rising, which is a sign the Fed may continue to slow or soon be done applying the brakes to our economic growth. Here at Charter Oak, we remain cautiously optimistic for stocks and bonds during the first half of the year. 


We anticipate the Federal Reserve will raise rates another 0.25-0.50 percent in early February and maybe again slightly (0.25 percent) in mid-March, then announce a break to let higher rates slowly impact our economy. The trick, if done correctly, will be for the Fed to take our economy from high inflation and high growth to low inflation and moderate growth – what is being called a “soft landing”. A soft landing is likely to spur economic growth and set the stage for stocks to regain losses suffered in 2022.



What Does 2023 Look Like for You?


They say it takes 25 days of consecutive behavior changes to create a habit. Once you create that habit, you begin to receive its reward. The key is consciously creating habits which result in the rewards you desire, with each action a vote toward your future self.


If you want to be in better physical condition, you spend more time exercising and eating better. If you want more money so you can retire or stay retired, you create habits around saving more, spending less, and living within your means. If you want success in your investments, you need to be patient, learn not to follow the crowd, stay disciplined when things get scary and hire an independent fiduciary like Charter Oak to guide you and keep your emotions out of your portfolio.


While we all wish to have a crystal ball, we do know that human ingenuity will certainly continue to develop our world. As this happens, Charter Oak will be there for our clients to navigate the complexities of those changes -- by professionally managing their investments and providing sound financial planning guidance and advice. We appreciate the opportunity to serve you and look forward to seeing you soon.