As we turn the calendar to 2023, many investors are happy to put 2022 behind them. 2022 was a roller coaster as the markets were anything but predictable accompanied by inflation hitting 40-year highs, rapid interest rate increases and mounting layoffs spanning across the economy as it begins to contract from all the policy changes.

The silver lining is that inflation appears to be slowing as the Fed maintains an iron fist on interest rates. The effects of the prolonged low-interest rate environment have been felt across all sectors and 2022 was the unwinding of those policies in an attempt to normalize the economy.

The Markets in Review

Last year saw considerable volatility across the markets. Overall, the market saw negative returns with technology being a big underperformer compared to other sectors. In addition, it was the worst year ever for fixed-income investors as interest rates spiked up and bond markets saw significant losses.

2022 proved to be a difficult year for investors as the three major U.S. stock indices all ended with losses – The Dow Jones Industrial Average finishing 8.78% lower, the S&P 500 dropping 19.44%, and the Nasdaq Composite Index falling by 33.10%, according to YCHARTS. Such consequences of year-over-year declines have been felt across markets in the U.S., making it abundantly clear that relevant precautions and educated decisions are more critical than ever when attempting to capitalize on capital movement in an ever-changing landscape.

Many analysts anticipate the markets to return to be more fundamentally driven in 2023 as much of the hype and hysteria surrounding the market has died down as the business cycle adapts to a high-interest rate environment.

Secure 2.0 Brings Fresh Air to Retirement Planning

The SECURE Act 2.0 has made some very significant changes that will benefit many of those with retirees and other beneficiaries. Starting in 2023, retirement plan Required Minimum Distributions (RMDs) are being pushed back to age 73, and by 2033 the age limit will be raised to 75 years old. This extended time frame allows individuals more flexibility regarding their retirement savings and could result in larger nest eggs at retirement by providing more time for compounding interest.

In addition, a new provision also allows excess 529 plan balances to be rolled into a Roth IRA account for the beneficiary with a lifetime maximum contribution amount of $33,000 and subject to annual Roth IRA funding limits. This is especially beneficial for those who want to leave additional funds behind for future generations, as it allows them the opportunity to maximize the power of tax-free growth within a Roth IRA account.

Some changes are coming down the line for those concerned about contribution limits on IRAs. Starting in 2024, inflation adjustments will be taken into account when setting IRA contribution limitations. This will help ensure that individuals can keep up with rising costs of living without sacrificing their retirement saving potential year over year.

The Housing and Mortgage Market Pivots into the New Year

The end of 2022 has been a tough one for the housing market, with mortgage applications falling to their lowest since 1996, and refinancing activity dropping 16.3%. As interest rates begin to climb, hitting 6.58% at the end of December, the market is set up for a potential correction in prices. The combination of high prices and rising rates makes it more difficult for new buyers to enter the market, creating an environment that real estate investors may be able to take advantage of.

For those looking to move now, deals are available in some areas due to employees working remotely and relocating outside of major cities. This could give investors an opportunity to buy homes that have been on the market but have not sold due to location-specific issues or higher prices than what many potential buyers can afford.

Overall, while conditions in the housing market remain challenging heading into 2023, there may still be opportunities out there waiting to be discovered by savvy real estate investors. By looking beyond traditional sales models and focusing on specific locations, investors may be able to turn current market trends into long-term financial gains as we move deeper into 2023.

*Data extrapolated from Redfin MLS data into 2023

Articles We’re Reading

Putin orders a temporary cease-fire in Ukraine… (link)

Mortgage demand plunges 13.2% to end 2022, as interest rates head higher again…(link)

Here’s (Almost) Everything Wall Street Expects in 2023 .… (link)

Market Snapshot

For the Month Ending 12/31/2022 (Cumulative Returns)1

1Source – Morningstar, Inc. Corporate Bonds is presented as the iShares iBoxx $ Investment Grade Corporate Bond ETF. Municipal Bonds is presented as the iShares National Municipal Bond ETF. High Yield Bonds is presented as the iShares iBoxx $ High Yield Corporate Bond ETF. 10 Year Treasury refers to the valuation of a 10 Year Treasury Note, a debt obligation issued by the U.S. Department of the Treasury. Fed Funds Target represents upper limit of the federal funds target range established by the Federal Open Market Committee. Inflation Rate provided for the purposes of this report by the U.S. Bureau of Labor Statistics. Unemployment Rate calculated by the U.S. Bureau of Labor Statistics. WTI Crude Oil refers to the price of a barrel of West Texas Intermediate NYMEX) Crude Oil. Gold – Spot Price relates to the valuation of an ounce of gold, as traded on the NYSE Arca Exchange. U.S. Dollar refers to the U.S. Dollar Index (DXY). All Returns are denominated in USD (United States Dollar), unless otherwise explicitly noted.

Did You Know?

The start of January always means the fresh possibilities that come with a new year. Across the world, different cultures celebrate in various ways – each one unique to their own traditions and beliefs. In Scandinavia, family members often gather on New Year’s Eve to jump off chairs at midnight to demonstrate how “high” they hope to set their aspirations for the year ahead. Countries such as England and Scotland witness traditional thematic customs like ‘first-footing’, where families welcome guests into their homes for good luck.

In Germany and Austria wooden tree ornaments called ‘Baubles’ are exchanged as gifts to friends and family! And in Japan, Shinto shrines offer prayer services in order to bring their respective communities’ wealth and prosperity.

Presented by the Investment Committee of Lake Street, an SEC Registered Investment Adviser

The information contained herein constitutes general information and is not directed to, designed for, or individually tailored to, any particular investor or potential investor. This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs and investment time horizon. Diversification does not ensure a profit or guarantee against a loss. There is no assurance that any investment strategy will be successful. Investing involves risk and you may incur a profit or a loss.