2023 = Bumpy Ride?

Forwarded this email by a friend? Subscribe here.

Happy New Year!

We didn’t have a hard time saying goodbye to the 2022 market, a year that found many investors yearning for the results they had seen in previous years. The last 12 months marked a dramatic shift, with many young people experiencing a financial bear market and sky-high inflation for the first time. The S&P 500 benchmark index sank almost 20%, its worst annual performance since the 2008 financial crisis, and the tech-heavy Nasdaq index fell 33.1%. This was accompanied by the collapse of speculation-driven crazes like meme stocks, NFTs, and crypto empires — not quite the roaring 20s we were promised.

A mixed bag is the most we dare to hope for this year, which will have many of the same headwinds of the last. Optimism is out, and pragmatism is in this year, says Fidelity, whose annual survey revealed a reversal of historic trends. Keep reading for a detailed look at what to expect and how you can prepare. After recapping the biggest sustainability news of 2022 last week, we also discuss some sustainability trends for 2023 below.

The energy and excitement that accompanies the start of the year can be used to take stock of your finances, make new resolutions, and consider what you want your sustainable investing journey to look like. Don’t overcomplicate it — those who keep their resolutions credit their success to setting goals that are realistic, easy to maintain, and specific. A few simple ones to consider: save more, keep track of your spending, pay off a credit card, build an emergency fund, and plan financially with an eye on your longer-term goals.

News you can use

• The 20 fastest-growing brands in 2022 included a generic cream cheese, Google Sheets, and two sustainability and impact-focused companies. Bright spots include: fourth-ranked SToK Cold-Brew Coffee, which is Rainforest Alliance Certified and owned by Danone North America (a Certified B Corp), and Greek yogurt manufacturer Chobani, which famously promised its employees 10% of its shares when it goes public or is sold and was recognized by Fortune as one of the top 50 companies changing the world.
  
• Public companies paid out record-setting dividends in 2022, and predictions say it’s likely this trend will continue. After a downturn during the pandemic, S&P 500 companies allocated $561 billion in dividends in 2022. While companies can always adjust their dividend policies, we’ve long reported on the recession-proofing benefits of dividend stocks, and this could be a (good) trend to watch in 2023.
  
• HP, General Mills, and Whirlpool Corporation have topped Newsweek’s annual list of America's Most Responsible Companies. Only public firms with total assets over $50 billion were considered and judged on all three pillars of ESG: environmental, social, and corporate governance. “We found the largest number of responsible companies (55) in the materials and chemicals business; the fewest (12) in hotels, dining, and leisure,” the publication reported.

Asking for a friend….

We know there is a lot to think about these days, and it can sometimes be a bit overwhelming. To help with those nagging questions and so you have useful resources at your fingertips, here are few links to resources and past stories relevant in these turbulent times:

• FWIW’s Guide to Long-Term Investing
• Some of our favorite inflation-fighting strategies (and a few more)
• Unpacking the ESG Alphabet Soup (including a link to our ever-growing glossary of common terms)
• FWIW Guide to Cleantech Investing: Sectors to Watch (covering a dozen innovative sectors to anchor your research on sustainable investing options)
• “Siri, What Is a Recession?”

Coming to a theater near you…

Tarot cards and crystal balls may promise you a meeting with a tall, dark stranger this year, but they’re usually mum on less exciting subjects like the economy and markets. Therefore, here is a compilation of predictions from financial analysts (along with some key sustainability themes to watch) so you are up to speed as we turn the calendar to 2023.

The economy: hikes and a looming recession

Some of the macro trends we saw in 2022 will most likely continue in 2023. To quickly recap, the Federal Reserve controls the cost of borrowing money, and thereby the economy, by setting the federal funds rate. This rate was close to zero at the start of 2022 but ended the year at 4.50%. The Fed projects it will rise as high as 5.1% in 2023, which means borrowing with credit cards, mortgages, or other loans will get more expensive, but returns on savings in bank accounts and certificates of deposit will also rise. It’s a good time to shop around for high yield.

Inflation was near a record high at 7.1% in November, but it had eased for five straight months since its 9.1% peak in June, and the hope is that this downward trend will continue and the Fed will pause hikes sometime this year. It’s hard to predict when this could happen as interest rates are likely to remain elevated until inflation has cooled down closer to the Fed target of 2%.

Will the economy slide into a recession as the Fed slams the breaks on growth? Many economists say we’re headed for one, either mild or deep, but these things aren’t easy to predict. Factors like Covid, political instability, and the war and energy crisis in Europe are also risks.

The best way to prepare for an economic slowdown is by budgeting and maintaining an emergency savings fund worth three to six months of expenses in a high-yield savings account. Since interest rates are expected to remain high for some time, you should avoid/pay off any expensive debt like credit cards. It’s also a good idea to look for opportunities to learn new skills and keep your resume updated.

Stocks: fasten your seatbelts for a bumpy ride

We spent much of 2022 gingerly peeking at our 401(k) balances, and we heard a lot less from that friend who so proudly proclaimed a few years ago that they quit their job to day trade, since rising interest rates put a damper on company earnings and stock prices. More volatility is in the cards for 2023, but there may be a reversal later in the year. Most Wall Street strategists expect the S&P 500 to end 2023 higher than it started.

Goldman Sachs predicts more declines in the coming months until the Fed’s tightening cycle ends in May, which will trigger a rebound. JP Morgan’s research team says the first half’s stock sell-off, slowing inflation, rising unemployment, and declining corporate sentiment should be enough for the Fed to start signaling a pivot, which will drive the S&P 500 higher.

Signs that the Fed is ready to end its rate hiking campaign and achieve a “soft landing” will particularly benefit beaten-down sectors like tech growth stocks and consumer discretionary. The S&P 500 stocks expected to experience the biggest jumps in 2023, according to FactSet’s calculations of analyst ratings, include 2022 losers like Dish Network, Tesla, Warner Bros Discovery, Generac Holdings, Signature Bank, Salesforce, Catalent, Amazon, and Live Nation Entertainment. Considering the headlines this week (we are looking at you, Tesla, Salesforce, Amazon, and, as Taylor Swift ticket seekers, Live Nation), this seems like a good time to remind you that FWIW is here solely as an information source. We recommend doing your own research and consulting financial professionals before taking any action.

You can take steps to make your portfolio more recession-resistant by increasing holdings in companies expected to perform well in a slowdown, like consumer staples and utilities, and seeking steady income through assets like dividend-paying stocks. The best approach is staying invested in a well-balanced, diversified portfolio of high-quality stocks and focusing on long-term gains. If you panic sell amid high volatility or try to time the market to maximize profit, you stand to miss out on a historic surge in prices. This short-term focus can also increase your stress — one thing we likely all have enough of right now.

Sustainability: rules and revolution

Whether it’s climate technologies, DEI, government funding and regulations, or innovative new assets like carbon credit funds, the sustainability landscape continues to evolve. Here are some areas we’ll be paying attention to this year.

1. Regulations and climate reporting: This year, both the International Sustainability Standards Board (ISSB) and the US Securities and Exchange Commission (SEC) will move forward with finalizing their first climate disclosure frameworks for companies, who have been lobbying intensely. We can also expect the SEC to continue its crackdown on misleading ESG claims. Protecting biodiversity and turning to nuclear energy to ease shortages are also hot topics in global climate efforts.
   
2. There’s a lab for that: Chances are, you’ve admired a lab-grown diamond or two this cuffing season as companies ditch the mined sparklers for more ethical, man-made ones. But, in 2023, we could also see lab-made leather, cotton, and even fur become mainstream, said Heather Marlow of MSCI. Lab-grown meat was recently greenlit by the FDA. “For companies facing controversy or criticism over the environmental or human-rights impacts of their raw materials, this could look like a game-changer,” Marlow predicted.
   
3. Paving the way for green hydrogen and steel: The US clean hydrogen sector, bolstered by the Biden administration’s subsidies, is at the “very early start of exponential growth,” says Brian Murphy, hydrogen analyst at S&P Global Commodity Insights. Green hydrogen is used to produce green steel, which does away with the traditional blast-furnace technology contributing 8% of total global carbon emissions. 17 steel companies have committed to reaching net-zero or carbon neutrality by 2050, but challenges lie ahead, says MSCI analyst Sam Block.
   
4. Wages and layoff policies: How justly employers let go of people will come into focus this year. It’s also important to watch which employers raise wages to match inflation and stay transparent about pay policies. “Beyond the clear link between wages and employee satisfaction and retention, research has shown that higher wages for low-income workers result in higher productivity,” wrote JUST Capital’s Matthew Nestler.
   
5. Banks and insurance emissions: Last month, HSBC said it will stop financing new oil and gas fields, joining a handful of other European banks like Lloyds and ING. After the disappointment of the Net Zero Banking Alliance last year, climate activists will be looking for US banks to step up. Similarly, you can also expect to hear more about the insurance industry on this subject.

Before you go -

The adorable visitors to a network of tens of thousands of bird feeders with AI-powered cameras can now be viewed live online. The company plans to develop a tool that will provide essential conservation data.

** FWIW team members own shares of Amazon, Danone, HP, and Tesla.

Want to learn a bit more about the writers behind FWIW? Have an idea you would like us to cover in the future?