- The U.S. economy grew at an annualized rate of 2.9% in Q4 2022, ahead of the forecast 2.8%
- It’s the second consecutive quarter of positive growth, following the start of 2022 which kicked off with two negative quarters in a row
- Most economists believe that we’re going to see a recession in 2023, with weak growth expected across the board
- Luckily, there are steps you can take to protect your investments against further stock market volatility
The talk of an impending recession has been squashed as the U.S .Bureau of Economic Analysis released figures of strong economic growth in the fourth quarter of 2022. At least for now.
Despite negativity being the persisting narrative in most discussions around the state of the economy, the U.S. economy grew 2.9% on an annualized basis. This was slightly ahead of the consensus estimates which expected the growth rate to be 2.8%.
Even though the result was better than expected, it’s probably not time to break out the champagne to celebrate the end of the downturn. Most experts are now forecasting a recession occurring at some point in 2023, with JPMorgan Chase now considering a mild recession to be their baseline estimate.
So what does that all mean for the stock market? Well we may still be in for some more volatility yet. Luckily for investors with Q.ai, we’ve got Portfolio Protection that can help protect the downside when things get rocky.
Let’s take a closer look at the latest GDP announcement, as well as what the experts are saying about the stock market’s expected performance in 2023.
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The latest data from the Commerce Department
The real GDP growth rate of 2.9% in Q4 2022 compares to 3.2% growth in Q3. So while growth wasn’t quite as strong, it was still significantly higher than the negative GDP growth that was experienced in Q1 and Q2.
It’s important to keep in mind that this estimate is based on data that is subject to revision, and a more accurate estimate will be released on February 23, 2023. The increase in GDP was driven by growth in private inventory investment, consumer spending, government spending, and nonresidential fixed investment, offset by decreases in residential fixed investment and exports. Imports, which are subtracted in GDP calculations, decreased as well
This boost in private inventory investment came mainly via improvements in manufacturing, mining, utilities, and construction. Consumers also spent more, with health care, housing and utilities, and personal care services all receiving a bigger piece of the pie.
The motor vehicle and parts industry also saw a decent increase in spending. Meanwhile, the government was also in on the action with a boost in spending, with the federal government increasing non-defense spend and the states and locals’ upping employee compensation.
Unfortunately, the housing market saw a slowdown, mainly due to a decrease in new single-family construction and broker’s commissions. Exports saw a dip, with non-durable goods taking the biggest hit, but services like travel and transport saw an uptick.
Imports also decreased, mainly due to a decrease in durable consumer goods.
Compared to the previous quarter, the overall GDP growth slowed down due to a downturn in exports, decelerations in nonresidential fixed investment, state and local government spending, and consumer spending.
With that said, this deceleration was partly offset by an upturn in private inventory investment, an acceleration in federal government spending, and a smaller decrease in residential fixed investment.
Is a recession expected in 2023?
According to a survey of chief economists at the World Economic Forum in Davos, Switzerland, a global recession is considered highly likely in 2023.
Two thirds of those surveyed believe it’s going to happen, and this aligns with much of the guidance we’ve been hearing on earnings calls and from Wall Street. Not only that, but every economist believes Europe will see weak or very weak growth in 2023 and 91% expect the same in the US.
However those same economists are also optimistic about inflation and the strength of company balance sheets.
CEO of JPMorgan Chase, Jamie Dimon, has been in the headlines recently, sharing a similar view on the prospects of the U.S. economy in 2023. While in Davos he appeared on CNBC’s Squawkbox, and commented that the bank’s central projection is now for a mild recession in 2023.
What will a recession mean for the stock market?
So, when the economy takes a nosedive and enters a recession, it can mean bad news for the stock market. But the word can is doing a lot of heavy lifting there, because it’s important to remember that the stock market and the economy aren’t the same thing.
During a recession, companies may start to see a decrease in profits and an increase in expenses. This can lead to a decrease in the value of the company’s stock. Investors may start to lose confidence in the market and sell off their stocks, causing a decrease in stock prices.
But the stock market doesn’t always follow the economy, it can sometimes be ahead of it, and it can also recover faster than the economy. In money circles, the stock market is what’s known as a forward indicator.
That’s because when investors look to make moves in the stock market, they don’t just look at the rear view mirror. If you’re looking to buy some Tesla stock, you’re not only going to look at what the company has been doing in the last year.
You’re also going to consider the moves they’re making for the future.
Because of that, stock prices often move on the expectation of what’s to come. So the volatility we’ve seen so far could mean any future economic bumps are already ‘priced in.’ However, if things turn out to be worse than expected, there could still be plenty more volatility on the horizon.
The bottom line
We’re continuing to be in a bit of a holding pattern when it comes to the markets. Stocks remain volatile, the economy is bumbling along and there could still be some bad news to come.
It means that it’s hard to decide what to do with your investments.
In these kinds of situations, wealthy individuals and hedge funds will often look to implement strategies that help offset potential risks. It means that they can capture the upside if stocks start to bounce, but give themselves an insurance policy if the road gets rocky again.
At Q.ai, we’ve found a way to use the power of AI to offer these sophisticated strategies to anyone. Our Portfolio Protection uses AI to analyze your portfolio and assess its sensitivity to various forms of risk like interest rate risk and volatility risk.
It then automatically implements sophisticated hedging strategies to protect against them.
Download Q.ai today for access to AI-powered investment strategies.