Looming Market Threats in 2023

The S&P 500 is up over 13% in 2023. However, in September 2023, we saw about a 5% decrease in the S&P 500 alone. As we approach the end of the year, people are starting to try to predict what the next year will look like from an investment perspective. There are a lot of biased, doomsday news sources, so it’s important to research market threats from a trusted source. We’ve found Vanguard is a good source to follow.

Long-Term Predictions

Vanguard currently predicts that in the next 10 years, large-cap U.S. equities will earn 3.7% to 5.7% per year over that time period, deviating at times by 16%. This indicates volatility ahead. Small-cap stocks are 4.3% to 6.3%, but they could be 22% above or below those numbers. Emerging markets in our own portfolio seem to be getting smaller and smaller because of the struggles in those countries right now. The predictions for that category are 6.2% to 88.2%, with 26% volatility.

For the next 10 years, there are not any projections by Vanguard or any other major asset manager showing major negative returns. Historically, the stock market has never lost money over a 10-year period. Therefore, patience is a virtue even in investing.

Short-Term Predictions

When looking at short-term predictions, Vanguard expects year-over-year inflation to be around 3.6%. They expect the Fed to hike up interest rates by .25% to .75% targeting a 5.25%  to 5.5% Fed rate number, which is a 22-year high in our country right now.

As far as rate cuts, the general expectation is that the Fed might cut rates in the first half of next year. However, Vanguard doesn’t believe that. Their reports indicate that there likely won’t be any rate cuts until the second half of 2024. A catalyst for an interest rate decrease would be a recession, or possibly inflation going back down to their target number of around 2% to 3%. Vanguard believes there’s a 70% chance of a recession over the next 18-month period.

Volatility and Market Threats in 2023

Ultimately, it’s important to be aware of the volatility ahead and looming market threats as we head from 2023 to 2024. There are a lot of news articles written to cause fear and panic. You can’t base your actions off of those articles. In times like these, you have to focus on your own financial plan, have an emergency fund in hand, and trust in the long-term yield.

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