For most of us who were heavily invested in the US markets, 2022 was a real challenging year to say the least. What more for those holding tech heavy portfolios. The Big Tech, the hyper growth FAANG stocks came tumbling down as The Federal Reserve stayed the course in taming inflation by having 8 rate hikes in 2022. The fed funds rate increased by a whopping 4.25% in 2022. Has it worked in taming inflation? Well some market analyst may argue, yes it has to a certain extend, given the drop in housing demand over the course of last year. However, job inflation still persists and frankly it's not clear how long this will last despite layoff announcements by big tech giants like Amazon, SalesForce, Facebook and several other Silicon Valley companies.
What can we expect for 2023 ? Typically a bear year like the one we had in 2022 tends to be followed by a bull year. Well at least that's what history tells us. Therefore, how do we manage our portfolios for better results in 2023? The answer in my opinion is :
1. Look for value stocks. Stocks with reasonable multiples (P/E ratios) compared to the average of the indices they are listed in. So if A stock listed in the S&P 500 has multiple lower than the index itself and has a steady business with good cash flow, chances of you making a return in that stock is higher.
2. Buy companies with steady stream of revenues, who are porfitable and have great cashflows. Some of these may have stock buy back plans and reasonably high dividends that can help prop the stock price up.
3. Stay diversified. Betting heavily on one sector may not be the best option no matter how well the industry may be doing.
4. Keep cash ready. This is crucial in order for us to start nibbling at our favourite stocks when their multiples (P/E ratios) start to fall and reach more attractive levels.
Overall, we believe there are going to be many opportunities in the market in 2023. However, we must pay attention to the inflation data and the Fed's reaction to it. Any signs of a soft or mild recession could get the markets rallying again.
In our next blog we will highlight the sectors and their respective stocks that we will be personally looking to invest in. Watch this space. Happy & Prosperous 2023!