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Market Insider: November 29, 2022

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U.S. Money Reserve

Nov 29, 2022

The traditional 60/40 stock/bond portfolio is on track for its worst year since 1937 according to research from asset management firm Leuthold Group. Portfolios are exiting 2022 in fragile positions and may be vulnerable to additional downturns in 2023.

Portfolios based on stocks and bonds have experienced significant negative returns in 2022.

The S&P 500 dropped 15% between January and November 2022, while in September 2022, pressure from a sell-off in both government and corporate bonds created a bear market for bonds, the first in decades according to The Wall Street Journal. This has left portfolios with a 60% stock/40% bond allocation losing 15% of their overall value so far in 2022.

According to financial services firm Fidelity, the size of an average 401(k) fell below $100,000 in the third quarter of 2022, down 22.9% from a year ago. Fidelity also notes that high inflation and rising interest rates have led to an increase in negative consumer sentiment.

Red market data with downward-facing arrows

Some of the factors that have contributed to market losses in 2022 may continue into 2023.

On November 17, 2022, analysts at J.P. Morgan predicted that Federal Reserve policies will cause a “mild recession” at the start of 2023. As a consequence of rising interest rates, the analysts say, the U.S. economy may contract by 0.5% by the fourth quarter of 2023, with a recession possibly lasting into 2024.

As of November 2, 2022, the Federal Reserve had raised interest rates to a range of 3.75–4%, its highest level since January 2008. At the start of 2022, interest rates were near 0%. Several Federal Reserve board members predict more interest rates hikes in the future, including St. Louis Federal Reserve President James Bullard and San Francisco Federal Reserve President Mary Daly.

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Advisors are recommending that consumers take steps to protect their portfolios.

In response to expected market volatility, some advisors recommend diversifying or rebalancing portfolios. The Wall Street Journal reported on November 13, 2022, that because of heavy losses in portfolios in 2022, financial advisors are “reminding clients of the importance of staying diversified, such as by holding commodities like oil and precious metals along with stocks and bonds.”

Portfolios that have seen losses in 2022—especially those containing a mix of only stocks and bonds—may benefit from the inclusion of physical assets like gold heading into 2023. Rising interest rates could continue to impact stock and bond markets as they have in 2022, and diversifying with non-paper-based may help hedge against stock market volatility.

Read U.S. Money Reserve’s “Market Insider” each week for more economic and financial insights.


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