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2023 Midyear Market Update

08 Sep

By: Colleen Weber

Economic Outlook / News and Updates

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By Colleen Weber, CFP®, CPA

As we find ourselves beyond the midpoint of 2023, now is an ideal moment to assess the various economic factors that impact both our economy and your investments. Following a demanding 2022, the initial six months of this year have shown encouraging progress in numerous sectors. Let’s take a comprehensive perspective on these domains and consider how you can prepare for the latter half of the year and the months ahead.

The Markets Are Up

So far in 2023, the performance of the financial markets has been measured, yet positive. While the Dow Jones and S&P 500 have taken a dip over the last month, the good news is that central banks may be led to change course and initiate a pause or possible interest rate reductions sometime in 2023, which could lead to a rebound of asset prices and ultimately the economy by the end of 2023. 

Underlying these market movements, the U.S. GDP remains relatively positive, yet isn’t high enough to be called robust. Meanwhile, the Federal Reserve continues its trend of gradually raising interest rates. Despite this seemingly stable backdrop, it remains uncertain how these various forces will influence the stock market’s performance for the remainder of 2023. 

Employment Is Strong

As of July 2023, the U.S. employment scene shows steady progress with an unemployment rate of 3.5%. Despite this promising figure, representing 5.8 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. 

GDP Is Growing

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 slowed sharply (1.6% vs. 4.2%) but still overshot market estimates as inflation eased but the labor market remained tight. 

This growth, while not overly impressive, still stands in contrast to 2022, which saw two negative GDP quarters. For 2023, real GDP (GDP adjusted to remove the effects of inflation) is projected to grow by just 0.1 percent. The growth of real GDP is estimated to increase, averaging 2.4 percent a year from 2024 to 2027, in response to declines in interest rates.

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 high inflation. After a streak of 10 rate hikes, in June the Federal Reserve hit pause on those hikes while reassessing the current economic growth and inflation. Despite these increases, inflation remains above the Fed’s 2% target, currently almost twice as high, though it remains lower than its peak of 9.1% in 2022. It’s yet to be seen whether interest rates, or inflation, will bounce back higher and hamper the economy for the remainder of 2023 as well as 2024. 

The World Is Experiencing the Same Issues As the U.S.

Global growth is projected to decline from 3.5% in 2022 to 3% in 2023 and 2024, 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 6.8% in 2023 and 5.2% in 2024. Despite the cautious outlook, the MSCI All Country World Index is up 13.07% so far this year.

You Can Still Have Control

Understanding these economic facts and predictions is a vital step in getting ready for the rest of 2023, but it’s just one piece of the puzzle. To make the most of this information, you need to incorporate it into a complete financial plan that addresses your individual goals. For example, how much should you save for retirement? How much can you safely spend from your accounts each year? Are your investments set up in the best way for your finances? Regardless of what happens with the economy, the Federal Reserve, Congress, or inflation for the remainder of the year, these factors are things you can control.

If you haven’t already established a plan that answers these crucial questions, our team at Colleen Weber CPA, CFP is ready to assist. Let’s collaborate to create a personalized strategy that matches your unique financial requirements and aspirations. Contact us today to book a free introductory meeting online or call (952) 470-0750.

About Colleen

Colleen Weber is a fee-only financial advisor, CERTIFIED FINANCIAL PLANNER™ professional, and CPA with more than 20 years of financial planning experience. Providing comprehensive financial planning and wealth management, she specializes in serving clients nearing retirement, retirees, busy professionals, and women. She is passionate about developing financial plans that save clients on taxes and investment strategies that help them pursue their goals. Learn more about Colleen by connecting with her on LinkedIn or booking a complimentary phone call meeting.