I’m expecting a recession in 2023 to bring lower share prices. With just a few days to go until the New Year, here’s my plan for my Stocks and Shares ISA.
2023 stock market forecast
The dominant theme of 2022 has been interest rates increasing to combat high inflation. And there’s some evidence that higher rates are having the desired effect.
Inflation in the US has reached 7.1%. That’s still higher than the Federal Reserve’s 2% target, but it’s been coming down steadily since June.
The UK is a bit further behind. Inflation has just started to turn the corner in November, down to 10.7% compared to 11.1% in October.
The war on inflation seems to be being won by the central banks – but at what cost? I think that high interest rates are going to bring on a recession in 2023.
As an investor, it’s not my job to comment on whether central bank policies are the right ones or the wrong ones. They are what they are – it’s my job to figure out how to invest in response to them.
Cash
I’m expecting falling share prices through most of 2023. So one strategy is to keep cash on the sidelines and wait for lower prices before investing.
There’s clearly some merit to this approach, but it’s not the one I’m going for. And the reason is fairly straightforward.
Put simply – I might be wrong in my recession forecast. If interest rates come down and share prices rise sharply, then I’ll either have to invest at higher prices or sit around waiting for a downturn.
I’m expecting a recession, but I’m not claiming to be a stock market clairvoyant. So setting up my investing strategy based on a view about what the stock market will do next year seems unwise.
Sectors
Another strategy involves focusing on certain types of investments. For example, I expect consumer defensive businesses, such as Haleon and Costco to do better than most in a recession, so I could look to buy quality stocks in this sector.
Even if my recession prediction is wrong, owning a lot of shares in strong defensive businesses isn’t an investing disaster. So with this approach it doesn’t matter so much if my forecasting is inaccurate.
Nonetheless, this isn’t my strategy. When I invest, I look for stocks that I can hold for 20 or 30 years and benefit from the performance of the underlying business.
Given this, focusing on the next nine months seems short sighted. I expect to own the shares I buy through good and bad economic times, so I’m not worried about price fluctuations in the short term.
Patience
Instead, my plan for my Stocks and Shares ISA is to be patient. I’m going to hold onto the investments I’ve made and wait and see what happens next.
I won’t be deliberately sitting on cash. I’ll be on the lookout for shares in quality businesses trading at attractive prices.
I also won’t be limiting myself to stocks in specific sectors. Instead, I’ll just try to take advantage of opportunities whether they’re in Apple or AstraZeneca.
In other words, I’ll be doing what I always do. I’ll be keeping an open mind and making sure I’m ready for whatever the stock market presents me with.
