For the global economy, 2022 was a year to forget.
That 2023 can easily get even worse is not the best news for investors. The job market may be resilient in a place like the US, but there is still a high chance of inflation hitting the economy in 2023.
Even if inflation doesn’t happen, the market will still be defined by rising market interest rates and higher prices. The best one can do is prepare adequately for the inevitable caused by the interest rates vs. stock market reality. So, what is the best way to beat these odds this year? This article will expound on the steps.
Interest Rates Vs. Stock Market Relationship
Higher interest rates have worked for some investors. Although no investor wants to see their stock values plummet, the higher rates have meant that investors with short-term savings get higher income.
However, debt-ridden investors may not be in a celebratory mood. The last decade was debt-friendly because it was easy to gather debts while interest rates were reduced and stayed manageable for a long time. That was then. Today’s interest rates are much higher. Mortgage rates have shot to unimaginable levels and the prime lending rate broke new barriers last year.
So, the first thing to appreciate in 2023 is that this is the worst time to be in uncontrollable debt. As one takes care of their debt, it is important to be keen on the direction the stocks are set to take amid interest rate shocks.
The Variables To Watch in 2023
To beat the odds of rising interest rates, one wants to realize that stock prices are prone to shocks even from the smallest news about a firm or its associates. However, overall, it is the change in the interest rate that has the biggest effect on the market. While there are exceptions to every rule, stock prices tend to reduce when interest rates are raised, and vice versa.
The first factor to check is the inflation effect. As the year starts, how central banks handle their business will determine how the rest of the year turns out.
And it’s not an easy undertaking, considering that these institutions mainly have interest rate adjustment as the only way to indirectly control prices.
Recession is going to be a constant worry this year, especially with the ballooning energy prices. As history has taught, a recession usually lasts for slightly less than a year. But if there is enough negativity in the market, the recession could last over a year. Perhaps what should give a glimpse of hope to investors is that inflation rarely attacks all the markets.
Also worth watching at this early juncture is the fact that geopolitics is still in play. The Ukraine-Russia war has affected many market dynamics globally, and as long as it continues, investors may bear the brunt. Supply chain disruptions, energy prices, and tighter monetary policies are the leading results of this conflict.
Fortunately, there are always ways to beat the odds of rising interest rates.
Surviving The 2023 Stock Market Challenges
One of the most effective ways to overcome this turbulent market is to have a long-term view. An investor should see beyond today’s doom, knowing that tomorrow may bring better prices. Experts suggest that it is worthwhile to focus on at least three years.
Discipline will be crucial this year, especially in the amount invested. One may want to apply the dollar-cost averaging strategy because it minimizes risky investments. It promotes small but regular investments that promise returns.
The investor needs to try as much as possible to remain in the market, and not consider quitting. Emotional investment can mess things up, so getting the passive investment path would be helpful. Warren Buffet and other leading global investors have advocated for this method.
As much as 2023 looks to be a challenging year for the investor in terms of inflation and market uncertainty, it is not the time to lay back. Indeed, money works best in this market during times like this.
The investor who learns to handle stock market volatility and uncertainty now may look back a few years from today with pride.
- Is Inflation Killing Major Currencies?
- What Is Inventory Management In The Supply Chain?
- 5 Most Effective Value Investing Techniques in Stock Market