The US stock market meltdown has hurt investor sentiments in 2022. The scenario may not see a sea-change in 2023 as markets may continue to face macroeconomic headwinds. The long-term investors should, however, remain unperturbed by such volatility associated with equity assets.
The unprecedented rate hikes in the US may impact the economy with a lag but the markets are forward-looking. True to its nature, the equity market may remain volatile in 2023. In an exclusive email interview with FE Online, Atanuu Agarrwal, Co-founder, Upside AI talks about the market outlook in 2023 and what should retail investors do amidst the expected volatility.
What is your outlook for US equities in 2023?
I think the only thing that can be said with some level of certainty is that we must brace for volatility. As always, there are way too many triggers that not only affect the markets, but also each other. Particularly this year, some of these are driven by autocratic regimes that always lead to enhanced variance. In my view, it is impossible to predict short-term direction, but volatility always offers some opportunity for supernormal returns (and risk) to certain kinds of investors. If you are a non-professional investor, you are better off just remaining fully invested as per an appropriate asset allocation.
I don’t have any specific advice or “tips”. As they say, there are many ways to get to heaven – there is no one killer strategy. Just following a robust system and having the discipline to stick to it is your best bet.
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How US stock market investors should prepare as Federal Reserve officials discuss increasing the interest rate needed to subdue inflation?
Honestly, most investors shouldn’t need to prepare at all for any Federal Reserve announcements. The reason is it is impossible to make an ‘informed’ contrarian bet that is not already priced-in; if you are, then you are most likely just rolling the dice. It is folly for individuals to try and ‘time’ macro indicators. There are too many moving parts and it is hard to separate noise from signals. It sounds cliched and banal, but really the only thing most of us should be worried about is the appropriate long-term asset allocation that is tailored to one’s circumstances and temperament.
How important are US Fed policies, especially related to interest rates, for investors to keep an eye on?
I have an unpopular opinion on this – it really doesn’t matter for most investors. The only time it matters is if one has the ability to make an informed contrarian call on Fed policies or most macro factors for that matter. And in my opinion, that is impossible to accomplish, unless you are close to Putin or Xi or Biden, and somehow have access to material non-public information. I know it sounds banal, but just stick to your asset allocation; everything else, as far as macros are concerned, is priced-in.
Also Read – UK Stock Market: Where to invest during a recession and a rising interest rate scenario