Displaying items by tag: inflation

You can’t talk about the markets in 2022 without mentioning volatility, and it appears investors are just as nervous now as they were last year. That is according to the results of a recent survey from Allianz Life. The firm’s findings in its Quarterly Market Perceptions Study for the fourth quarter of 2022 revealed that 77% of the survey's respondents believe equities will be volatile in 2023, extending the big swings that eventually drove stocks into a bear market in 2022. Stocks were hit hard last year as high inflation prompted the Fed to raise interest rates. The volatility is making most Americans nervous about their retirement portfolios in the face of a potential recession, while inflation is still running hot. In fact, many investors would rather hold onto cash than risk losing money in stocks. Allianz Life found that 64% said they would rather have their money sit in cash rather than endure market swings. The financial services provider also noted that Americans are so concerned about their financial futures that many are halting retirement contributions and are worried about covering their day-to-day expenses. For instance, 65% of respondents said they will adjust their retirement and investment plans if volatility continues, jumping from 57% during the same period last year. Plus, eighty-two percent of Americans are worried that rising inflation will keep hurting their income's purchasing power over the next six months.

Finsum:After suffering crushing losses last year on account of wild market swings, investors are even more concerned about volatility this year, which could result in them sitting in cash and halting retirement contributions.

While markets in 2022 were crushing for many, some portfolio managers at Capital Group are seeing brighter days ahead this year, but are still playing it safe. At a webinar revealing the firm’s asset allocations for this year, managers stated that they are reacting to a changing environment and that the market’s direction will depend on the movements of the Federal Reserve. John Queen, fixed-income portfolio manager said, “The key is inflation, and the path inflation takes from here is really going to determine what the macro environment looks like, what happens with interest rates here in the U.S., and then how aggressively the Fed is willing to combat that inflation if it stays somewhat elevated.” While the adjustments that the firm is making to its model portfolios are small, they are tilting away from growth and moving toward income, according to the panel. For instance, in its growth and income model portfolio, Capital Group moved 5% of its allocation out of a balanced fund and into a diversified fixed-income fund. Michelle Black, another solutions portfolio manager at the firm stated, “For a 20-year horizon, the starting point matters, and starting after a down year means positive outcomes for long-term investors. It’s probably not surprising to hear we have higher expected returns across the board versus one year ago, stemming really from more attractive valuations, especially in fixed income.”

Finsum:Capital Group portfolio managers are tilting away from growth and moving towards income in their model portfolios due to attractive valuations in fixed income.

After a brutal year in the markets, you wouldn’t blame investors for being cautious in 2023. However, Fundstrat’s Tom Lee believes that history favors a 20% stock-market return in 2023. According to Fundstrat, “Historical data shows there is a high chance that the U.S. stock market may record a return of 20% or more this year after the three major indexes closed 2022 with their worst annual losses since 2008.” Lee basis this on the fact that in the 19 instances of negative S&P 500 returns since 1950, over half of those years were followed by the index gaining more than 20%. He and his team believe that three possible catalysts would enable stocks to produce 20% gains this year. The first catalyst is lower inflation. They expect lower inflation to set the stage for the Fed to stop raising rates and eventually start to lower them. Fundstrat also believes that wage gains will slow and volatility will fall. According to Fundstrat, equity and bond market volatility is likely to fall sharply in 2023 in response to a drop in inflation and a less hawkish Fed. Lee and his team wrote in a note that “Our analysis shows this drop in VIX is a huge influential factor in equity gains, which would further support over 20% gains in stocks.”

Finsum:Due to historical data, lower inflation, slowing wage gains, and falling volatility, Fundstrat’s Tom Less believes that the market will gain 20% or more this year.

According to a recent study by Lincoln Financial Group, market volatility is pushing Americans to refine their financial goals this year. The study revealed that 88% of Americans said they see room to improve their overall financial wellness, while 71% are likely to set financial goals in 2023. The respondents said that inflation and market volatility has made preparedness a top financial priority. For instance, 56% said protection from risk is most important to them, 39% said their greatest money goal is protecting their family, and 26% said guarding their income was a top priority. While data is showing that inflation is beginning to slow, there are still real concerns over whether the U.S. economy could enter a recession this year. This has investors nervous. David Berkowitz, Lincoln Financial Network president, said the following in a statement, "Our research reinforced the importance of financial solutions that can help consumers navigate through market cycles and protect their loved ones. People are not only concerned about having enough to pay their bills, but also saving for retirement and preparing for the unexpected.” For example, 40% of respondents said that financial protection meant being able to comfortably pay for basic living.

Finsum:A recent study by Lincoln Financial revealed that market volatility and inflation are pushing a majority of investors to set financial goals this year to navigate the market uncertainty.

According to industry group Nareit, REITs are well-positioned to navigate economic and market uncertainty in 2023 due to strong operational performance and balance sheets. As part of their 2023 REIT Outlook, the firm wrote, “despite economic headwinds and weakness in valuations, equity REITs have proven to be quite resilient from an operational perspective, and it is clear that REITs are well-positioned for ongoing economic uncertainty in 2023.” The firm noted that data from the Nareit T-Tracker in the third quarter of 2022 highlighted solid year-over-year growth in funds from operations (FFO), net operating income (NOI), and same-store NOI. Quarterly FFO increased to $19.9 billion in the third quarter, a 14.9% increase from a year ago and an all-time high. While the pandemic took a toll on the operational performance of equity REITs, there’s no question that it has recovered and surpassed pre-pandemic levels. Nareit also noted how REITs historically perform during and after a recession. For example, REITs have historically outperformed private real estate during a recession and in the four quarters after a recession. REITs have also historically outperformed their equity market counterpart before, during, and after recessions.

Finsum:Based on Nareit's 2023 outlook, REITs are well-positioned to navigate market uncertainty and a potential recession due to strong operational performance.