It’s hard to believe we’re already halfway through 2023. However, that makes it a great time to check in and evaluate markets and the current state of the economy. While 2022 turned out to be pretty dismal, the first half of this year has been shaping up to be more promising in many areas. In this article, we provide an overview of some of those economic indicators, as well as what you can do to prepare for the second half of the year and beyond.
The Markets Are Up
So far in 2023, the performance of the financial markets has been measured, yet remains positive. While the Dow Jones remains effectively flat, mirroring its position from this time last year, the S&P 500 has seen a modest rise, up 8.6% for the year to date.
The tech-centric NASDAQ has shone brighter, growing a noteworthy 23% this year.
However, adopting a longer-term perspective paints a slightly different picture. Over the course of the past year, all these indices are essentially unchanged from their positions this time in 2022, suggesting a degree of stability in the midst of fluctuating market conditions.
Underlying these market movements, the U.S. GDP maintains positive, yet hasn’t grown enough to be called robust. Meanwhile, the Federal Reserve continues its trend of raising interest rates. Despite this seemingly stable backdrop, it remains uncertain how these various forces will influence the stock market’s performance in the second half of 2023.
Employment is Strong
The U.S. employment scene shows steady progress with an unemployment rate of 3.4%.Despite this promising figure, representing 5.7 million active job seekers, there are complexities beneath the surface. While unexpected job losses and short-term unemployment have decreased, the numbers of long-term unemployed and part-time workers desiring full-time roles remain a concern. Also notable is the rise in people outside the labor force but eager to work, up to 5.3 million.
GDP Growth Not Keeping Up With Inflation
The U.S. economy has shown signs of rebound in Q1 2023 with an annualized GDP growth of 1.3%, slightly exceeding the initial estimates and market predictions of 1.1%. Consumer spending growth outperformed expectations, rising to 3.8% despite ongoing high inflation.
This growth, while not overly impressive, still stands in contrast to 2022, which saw two negative GDP quarters. It is also expected to continue, with forecasts predicting a growth rate of 1.5% by the end of the second quarter.
The Federal Reserve, Interest Rates, and Inflation
The Federal Reserve has raised its key interest rate to the highest level in 16 years to combat higher inflation. However, this streak of 10 hikes could be nearing its end as the Fed assesses their impact on economic growth and inflation. Despite these increases, inflation remains above the Fed’s 2% target, currently sitting at 5%, far lower than its peak of 9.1% in 2022 but still remains uncomfortably high. Finally, the rising costs of goods and services, as well as tighter lending requirements and higher interest rates, could hamper the economy in the second half of 2023 and into 2024.
The World Is Experiencing the Same Issues as the U.S.
Global growth is projected to decline from 3.4% in 2022 to 2.8% in 2023, the lowest medium-term forecast in decades, largely due to the tight policies needed to curb inflation, deteriorating financial conditions, and geopolitical tensions. Inflation is expected to decline from 8.7% to 7% between 2022 and 2023, but the return to ideal inflation rates is not expected before 2025. Despite the cautious outlook, the MSCI All Country World Index is up over 7.5% so far this year.
Focus on What You Can Control
Understanding these economic data and projections can be a crucial part of preparing for the rest of 2023, but it’s only part of the story. To make the most of these insights, you must integrate them into a comprehensive financial plan that addresses your personal goals. For instance, how much do you need to save to meet your retirement goals? How much can you safely distribute from your accounts each year? Are your investments structured optimally for your financial situation? No matter what the economy, the Federal Reserve, Congress, or inflation does for the rest of the year, it is important to focus on what you can control.
What Does This Mean for You?
Remember that market predictions are inherently uncertain, and unforeseen events can disrupt even the most well-analyzed outlook. Diversification, long-term perspective, and careful risk management are essential for navigating the market effectively.
You may not know exactly what the future holds, but don’t let that prevent you from taking the steps to protect yourself and pursue financial freedom. Our Wilkinson Wealth Management team can help you navigate your financial challenges and opportunities with confidence. We prioritize building long-term relationships with clients and aim to be the person you call when life throws a curveball or questions arise. To learn more about our 2023 outlook and how we can help you, reach out to us at 434-202-2521 or use our Contact Us page to schedule an appointment.
Susan Wilkinson is founder, president, and financial advisor at Wilkinson Wealth Management, a financial services firm in Charlottesville, Virginia, providing customized financial planning and strategies with a personal approach. With over 25 years of experience, she has a passion to come alongside her clients to help them fulfill their dreams and grow their wealth so they can be financially independent. Susan is known for listening to her clients, digging deep into their values, concerns, needs, and goals so she can build a financial plan tailored to their unique life. She prioritizes building long-term relationships with her clients and being the person they call when life throws a curveball or questions arise.
Susan is a CERTIFIED FINANCIAL PLANNER™ professional and has an MBA from Webster University and a Bachelor of Liberal Arts in Economics and Sociology from the University of Mary Washington. When she’s not serving clients, you can find Susan outside, either gardening, biking, or hiking. She’s a homebody at heart who loves music, especially playing the piano and cello. One of her favorite things to do is spend time with family, including her husband, Terry, her children, and her twin granddaughters, whom she affectionately (and appropriately) calls the “twinados.” To learn more about Susan, connect with her on LinkedIn.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision.
All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
Investing includes risks, including fluctuating prices and loss of principal. No strategy assures success or protects against loss.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.