The economic outlook in 2023 is a hot topic right now, and inevitably it has implications on investors. Whilst diving into the latest investing trends and market news, we have compiled 5 questions that may be on the minds of investors in 2023.
Will Futures Trading Remain Strong?
A few weeks ago, Goldman Sachs claimed that they believe commodities will gain 43% in 2023. These kinds of predictions are exactly why experienced investors continue trading Futures, in an attempt to capitalize on the highly volatile markets.
For those wondering what are Futures, they are a quick and liquid way to trade, particularly among the most popular stocks. They’re also a way to gain exposure through leverage. But, this also implies high risks, that’s why its not recommended for novice investors.
Futures were a common way to gain exposure to agricultural markets like wheat which were heavily impacted by the invasion of Ukraine. Given that geopolitics and economic activity are still vibrant, to say the least, we expect Futures trading to remain a popular strategy in 2023.
Will There be a Resurgence in Tech?
Tech suffered the greatest loss in 2022, so many are wondering what the outlook is for 2023. Most analysts believe that the market conditions that created the crash in 2022 no longer exist in 2023.
Some of the fundamental problems do still exist. Profitability is a concern for many, whilst other tech stocks are not even really tech stocks.
However, crazy amounts of funding to blizscale startups are no longer as popular, in part because interest rates will remain high this year. Furthermore, it would be difficult to make the case that they have much further to fall, given that many lost half their valuation. Most analysts agree that 2023 will be kind to tech stocks, despite volatility remaining high.
Could the rise of index investing break the market?
2020-2022 saw a huge rise in index investing. It’s slowly becoming the dominant investing strategy among beginners, and even some experienced investors. Robo-advisors, which heavily rely on index funds, along with Vanguard have seen a tremendous increase in funds managed.
In 2023, we expect there to be growing questions about whether this is a threat to how markets function. What would happen if everyone became an indexer? Would the pricing mechanism be broken?
But, fear not. This is unlikely to spoil the average-returns party that many are enjoying. When there are inefficiencies in the market and stocks are not priced correctly, this creates an opportunity to exploit the under and over-pricing of assets. For as long as these inefficiencies exist, people will try and profit from them. So, the market is self-correcting, as any libertarian would smugly point out.
Does AI Pose a Benefit or Threat to Investors?
AI has been the hot topic of debate leading into 2023. With OpenAI’s owner claiming that AGI could break capitalism, many wonder what the outcome will be of increasingly intelligent AI. For example, mass redundancies could be one fear. This would initially be good for the share price of a firm as it immediately benefits profits, but for how long? With labor market issues, consumers have less money to buy goods.
These aren’t serious concerns for 2023, but they’re conversations we need to start having. For now, it’s difficult to view AI as anything other than a benefit to productivity in 2023, which should be seen in a positive light for investors. ChatGPT, for example, is becoming a useful “free” assistant for many employees, though it is a serious threat to Google. So, there could be some losers to such developments.
Is The Economic Outlook Really Bad News?
Many news outlets are painting the picture that 2023 has an extremely bleak economic outlook. Inflation will remain above target, growth will either be slow or non-existent, and interest rates may not fall anytime soon. But is this really bad news?
For markets, this may be better than expected. Given the war, supply chain issues, and concerning inflation, a sluggish 2023 doesn’t seem too bad of a price to pay. Of course, the economy and the stock market are independent, although loosely linked, so even sluggish GDP growth doesn’t necessarily mean markets will be stale.
The UK, for example, has the worst economic outlook for the G20 besides Russia. 17 of the 20 are forecasted some level of growth, with 5 of them expected to have 3%+ growth. Yet, even the British FTSE 100 is performing well because of their bleak situation, as the pound is cheap (making the GBP-denominated stocks cheap). This kind of mechanism helps retain trading volume in markets, which is why most analysts are not predicting a terrible year for stocks in 2023.