Your 2023 Investing Outlook: Waiting for the pause

Good morning and good riddance to 2022, which has one trading day left to torment us with. Santa Claus rally? Looking a bit wobbly, which leaves us looking ahead to 2023. Can’t be worse, can it? There are many scenarios that could roil global markets in the months ahead, but there are certain factors in investors’ favour. For one thing, it’s rare that the S&P 500 posts two losing years in a row. For another, Canada and the United States have a lot of oil companies flush with cash to either return more money to shareholders or use on capital projects to better position themselves for the economic rebound, assuming that some sort of downturn is in the cards.

Kristina Hooper, chief global strategist at Invesco Ltd. says a market recovery is on tap once the United States Federal Reserve ends its rate-hiking regime. But that’s not going to happen overnight, so investors should be positioned defensively now and be prepared to pivot when the Fed makes its move. 

Indeed, the first half of the year could look a lot like the one that just passed, but Joel Clark, chief executive of KJ Harrison Investors, says “the headwinds of the first half of next year could well set the stage for phenomenal returns in the second half.” He’s paying particular attention to physical and hard assets, and their stock-market iterations, as well as commodities and precious metals, which could benefit from a declining U.S. dollar as the Fed moves out of its inflation-fighting stance.

Can’t wait that long? Long-time Financial Post columnist Peter Hodson reminds us of the January Effect, in which investors dump their losing stocks before year-end, setting up a possible bounce in the new year. Small caps tend to experience this swing more widely given they are generally less liquid than their large-cap brethren. He also reminds us that while retail investors may not be flush with cash, corporations are, so expect to see plenty of M&A activity at nice premiums if valuations stay weak.

One thing we should perhaps not count on is an outsized response to China’s reopening. The relaxing of its zero-COVID policy should boost demand for consumer goods and help relax supply chain bottlenecks, but infections remain high and it’s unclear how much sustained mobility the government will grant its citizens. As a result, economist David Rosenberg also says investors should consider taking a defensive posture by steering clear of cyclical stocks while adding high-quality bonds to their portfolios.

Another area investors might want to consider to help provide some ballast in their portfolios is the whole alternatives space. Once the playground of the rich and famous, the game is now a bit more open to less wealthy investors, though, here again, there are risks that need to be considered and, as Ash Lawrence, head of AGF Private Capital, says, some things such as cryptocurrencies should be ignored.

One thing that won’t change is that we’ll all still be watching the central banks and wondering when they will finally stop raising rates. Wealth adviser Ted Rechtshaffen expects to see the first interest rate declines late in 2023. In the meantime, keep in mind that inflation has had one positive effect — if you’re retired, that is. Government pension payouts will grow 6.3 per cent in 2023 since they are tied to inflation. If you can maximize your Canada Pension Plan and Old Age Security benefits, you could receive as much as $24,000 combined in 2023.

As a final thought on 2022, I’d like to thank all our contributing columnists as well as Victoria Wells for proofing the newsletter, Pam Heaven for getting up before the crack of dawn to double check the links and Gigi Suhanic for all the art. And thank you for reading. Here’s to a better 2023.

Andy Holloway, editor of the FPI and Financial Post Magazine, and senior features editor of the Financial Post. If you have any quips, queries or comments, get in touch at [email protected].

Quitting isn’t always a bad idea when it comes to investing

Trying to time the market is rarely successful, but sometimes the forward prospects of a stock or industry mean it just makes sense to move into something else. Portfolio manager Martin Pelletier says many investors anchor that decision to some previous price point, such as when we bought in, which is kind of meaningless. As the old oil filter commercial told us: you can pay me now, or pay me later.

QUITTING TIME

Big investors warm to bonds after historic 2022 selloff boosts yields

Fund managers are favouring debt relative to other asset classes for the first time since the wake of the 2008 financial crisis because they may actually receive some income from highly rated bonds — an increasingly rare phenomenon over the past decade. Some fund managers also argue fixed income is set to regain its role as a portfolio ballast to riskier assets, a typical correlation that vanished in the simultaneous selloff of asset classes in 2022.

YOURS IN BONDAGE

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It’s a make-or-break year for these battered companies

Rising interest rates, more budget-conscious consumers and a sagging stock market hurt a lot of companies in 2022, but a few of them have been left in very tough spots at the start of the new year. From cruise operator Carnival Corp. to electric-vehicle startups, Bloomberg looks at five that investors should be watching closely.

FIVE NOT SO ALIVE

We’re in our 50s, but do we have enough to retire next year on $70,000 per year?

Freedom 55 is a dream for many, but one reader thinks he might be able to pull it off after crunching the numbers. Just one problem: his wife isn’t on board with the plan since she can’t see how they can live off $70,000 a year when they’ve been making do with more than twice that. Certified financial planner Allan Norman says things might be tight, so if everyone isn’t a fan of the plan, going from one stress to another isn’t the best idea.

GET THE ANSWER

Got an investing or personal finance question? Hit us up at [email protected].

Rising mortgage rates have hurt the housing market, but some say tight inventories could keep things in balance, unless there’s an eventual flood of distressed sellers. That doesn’t mean things are looking up just yet. “Ultimately, borrowing power remains restrained,” Vancouver realtor Scott Saretsky tells the Financial Post’s Larysa Harapyn. “You’ve got a stress test that looks like it probably is not going to be altered at OSFI’s upcoming meeting and so people are gonna have to be stress tested with a seven in front of it, and that, ultimately, is going to restrict purchasing power.”

WATCH THE VIDEO

11 tax changes and new rules that will affect your finances in 2023

Are you burning a hole through your finances because of high inflation? Most (but not all) income tax and benefit amounts are indexed to inflation and that means federal government payments will rise 6.3 per cent starting Jan. 1. Tax expert Jamie Golombek has 10 other important tax figures that we should pay attention to as the calendar turns.

NEW RULES

Good news if you’re still a Tesla Inc. shareholder: The electric-vehicle maker’s stock was saved from an eighth straight day of losses on Wednesday as buyers finally bought the dip, slightly trimming a 69 per cent loss this year that has put Tesla among the worst performers on the S&P 500 index, which is …

… Bad news if you’re a Tesla shareholder: But good news for short sellers, who are poised to reap mark-to-market profits of about US$17 billion on Tesla, making it the most profitable short trade of the year, according to S3 Partners LLC data. About 2.9 per cent of Tesla’s free float is held short.

Good news if you’re an oil investor: High oil prices in 2022 snapped a decade of weak commodity prices and brought prosperity back to the oil sector, so much so that many companies paid down large amounts of debt. As a result, they will have more cash flow available next year as long as commodity prices hold around the US$75 per barrel mark, so they will likely continue to focus on shareholder returns.

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