What Markets Hold For 2023 and What Assets to Invest in?

As some people like to say, we are always faced with great opportunities carefully disguised as insurmountable problems. And most of us kept repeating this to ourselves many times in 2022, one of the most difficult years for all, for numerous reasons. Consumers, investors, and economies around the world faced many challenges. Will things get better in 2023? How can you benefit from that as a trader or investor? Let`s break it down.

How Did Things Develop in 2022?

The Fed remained the main newsmaker in the U.S. stock market. The era of low rates and cheap currency, in which the global platforms lived since 2008, came to an end. Actively struggling with inflation, the U.S. financial regulator raised its key rate seven times in 2022, to 4.25-4.5%.

The last time it was this high was back in 2007. This, of course, came as a major shock to many investors who came to the exchanges during the bull market and had no experience trading in such tight monetary conditions and high stock market volatility.

One of the biggest disappointments for retail investors was the decline of the income segment of the IPO, which is 2020 – the first half of 2021 showed incredible growth, as, however, almost all asset classes. But from November 2021 through mid-December 2022, IPO ETF quotes fell more than 60% while the Nasdaq declined by 35%.

Why was this the case? In the face of rising rates, valuations for companies planning to list on the exchange have been falling. The fastest-growing issuers, which hold the largest share of the IPO market, were most vividly affected by this trend.

Realizing that they will not be able to get a fair valuation on the stock exchange, many CEOs have abandoned the planned initial public offerings. As a result, the number of IPOs in 2022 was the lowest in the last 25 years (the only exception was the crisis year of 2008). Quotes of the most daredevils, who nevertheless came to the stock exchange, showed negative dynamics. But there were also those who, despite all the difficulties, managed to show recovery.

These are, for example, ShockWave Medical (SWAV) and Array Technologies (ARRY). In the first case, the paper rebounded from the lows by 95%; in the second, it rebounded by 230%! What does this story teach us? While almost any asset rises in a bull market, during periods of high volatility, one must choose one's instruments carefully, analyzing their possible prospects.

What's In Store For 2023?

The main risks of the coming year are high inflation, the possibility of a recession, its duration and depth, as well as the Fed's policies. On the positive side, there is a trend toward a loosening of anti-Covid restrictions, as well as the still substantial amount of liquidity in the hands of the public (about $1.45 trillion, according to analysts). Simply put, there is still more funds than assets that can be bought with it. This is an important growth driver for stock prices.

The most favorable scenario of a "soft landing" of the economy is still quite possible, but it will require a combination of the following factors:

• Labor market tightness will decrease, and the number of vacancies will decrease, but employers will refrain from mass layoffs;
• Inflationary expectations of consumers will adjust over this year, which will allow wages to be raised more slowly. However, this will require a decrease in energy prices, which, in turn, is possible with a reduction of the geopolitical premium or in the case of weak growth of the Chinese economy;
• The most important component is strong domestic demand in the United States.

However, even with a more likely scenario of a moderate recession, economic activity will begin to recover in the second half of the year. In this case, "growth" companies will show better dynamics than the market and "value" factors. In sectoral terms, starting in the third quarter, the current outsiders - IT companies, telecoms, and durable goods manufacturers - could look fairly confident.

How to Choose, What to Invest in and What to Pay Attention to in 2023?

Undoubtedly, most experts and professional traders would agree that the choice of an asset for investment should depend on what return an investor wants and what risks they are willing to take:

• Cryptocurrencies carry the most risk;
• Shares of companies are less beneficial, but more reliable assets;
• Professionals advise precious metals investments only for those who are ready to attain yield in years to come.

By the spring of 2023, according to the majority, cryptocurrencies may be in the spotlight. By the designated period, we can expect some recovery of the global financial market. Positive changes could push the coins, which had fallen in price by that time, to growth.

Also, it is possible to assume that on the background of the reduction of inflation and softening of the policy of the world regulators on the rates, there is a chance for the growth of the shares of American companies, including Apple, Tesla, and Microsoft. In addition, we all see the potential for higher fuel prices.

Currencies, on the other hand, could get cheaper. We should also pay attention to the lowering of the Fed's rate hike threshold in December 2022. The change could weaken the dollar.

What Assets to Choose in 2023

After sifting through a myriad of opinions and recommendations, we've chosen several categories for investment. We tell you about the prospects and disadvantages of investing in each area.

Investing In Cryptocurrency

Pros of investing in cryptocurrency in 2023:

• Suitable for both short-term investments and long-term investments;
• Good risk-to-return ratios;
• Wide range of assets.

Cons of cryptocurrency investing in 2023:

• There is a risk of tighter regulatory pressure;
• There is a risk of further market decline.

For example, some believe that the best option for 2023 is to hold funds in bitcoin, as well as stablecoins with a peg to the dollar and gold. That said, there is a perception that investors are underestimating the regulatory risks of the second most capitalized cryptocurrency, Ethereum.

This dislike of ETH is due to the excessive level of centralization of the coin amid its transition from the extremely energy-consuming PoW to the more environmentally friendly PoS algorithm in September 2022, as well as the lower growth potential of the network compared to TON. Among the risks of investing in cryptocurrencies, one cannot ignore the possible tightening of regulatory pressure.

Other token traders believe that high-cap cryptocurrency investments are worth focusing on in 2023, as they offer good returns and moderate risk.

We are convinced that cryptocurrencies are the assets with the most attractive potential return-to-risk ratio. Therefore, it would be wise to give preference to investments in blockchain, and crypto projects. We draw the attention of especially beginning investors to the fact that in the current market realities, it is worth investing only in cryptocurrencies with large capitalization, carefully study them before investing, and be ready for sharp local dumps and spikes.

Investing In Gold and Other Precious Metals

Pros of investing in gold and other precious metals in 2023:

• Gold is a traditional asset to protect savings in times of crisis;
• You can invest in gold and other precious metals through stablecoins.

Cons of investing in gold and other precious metals in 2023:

• Low, compared to cryptocurrencies and stocks, returns;
• Appropriate only for long-term investments.

Gold and silver will help to escape uncertainty in the markets because gold is traditionally a protective asset during crises. That being said, we draw your attention to the fact that you can invest in precious metals with stablecoins.

Some also believe that the best choice for investors in 2023 - gold, because of the instability of the world economy experts expect a record increase in the prices of this precious metal.

Investing In Stocks

Pros of stock investments in 2023:

• Securities as an investment tool look more stable than cryptocurrencies;
• There is potential for growth in the stock market in 2023 as regulatory pressure eases;
• Wide range of assets.

Cons of investing in securities in 2023:

• Low, compared to highly volatile cryptocurrencies, returns;
• There are risks of stocks continuing to fall if the theory that the stock market has not yet worked out the response to 2022 regulatory pressures proves to be correct.

Some, for example, believe hotel sector stocks are worth paying attention to in 2023.

These can provide high yields (15-18% per annum) with relatively low risk. Since 2021, when the pandemic has subsided and people actively plan vacations away from home, hotel EBITDA has been growing at a high rate. Most hotels have a 30-50% annual growth rate, and there are even cases of EBITDA doubling. Such an approach will not yield much return but will help save funds. The experts advise paying special attention to the shares of the military-industrial complex and energy sector.

Others believe, that market participants should not rush to buy stocks. They explain their point of view by the prospect of further fall amid continuous growth of the Fed rates.

In their opinion, the market will be in a deep depression for a long time, caused by mass unemployment, falling demand, a possible debt crisis, and much more. But by the end of the year, a gradual awakening of the market and the beginning of growth is possible.

Investing in Currencies

Pros of investing in currency in 2023:

• Choosing the right currency will help save savings from depreciation and preserve purchasing power.

Cons of investing in currency in 2023:

• There's a risk of the "printing press" starting up, which will lead to currency depreciation;
• The dollar risks weakening as the Fed's rate hike slows.

Some are opting for dollars. At the same time, they note that the Fed's "launch of the printing press" could weaken the U.S. national currency. That's why investors should "keep their hand on the pulse”.

Others, in turn, advise paying attention to the Chinese yuan and Japanese yen. Both currencies can help preserve the purchasing power of the currency.

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