Here’s what experts expect amid recession fears

This article was originally published Bankrate.com.

Despite the decline in the markets in 2022, investors are looking to the future, and Many see a relatively attractive climate If investors could think in the long term instead of getting caught up in the moment. Individual pockets of the market can function well despite greater economic distress and can create investors, as opposed to short-term traders, for years to come.

But until the Fed backs off from raising interest rates, that could be more than what has driven the 2022 market.

“This year saw growth in growth stocks, tech stocks, and cryptocurrencies,” says Sawhney, and he expects 2023 to “make progress on a similar trajectory until the recovery begins.”

It’s important not to let financial media and short-term news distract you from long-term opportunities, says Josh Answers, host of the Trading Fraternity YouTube channel. “Look at the essentials and stick with what you know and research,” he says. “News outlets are always late to the party, so do your homework and anticipate the moves in the market.”

And with the economy weakening, it may be a good time to step away from retail and entertainment companies, which are sensitive to economic cycles, says Mina Tadros, CEO of Tadrus Capital, a high-frequency hedge fund. “The pandemic has already had a significant impact on these sectors, and a potential recession could further hurt their performance,” he says.

What types of stocks could outperform in 2023?

Here are some areas where investors can see opportunities in the coming year.

quality companies

“The market may or may not have more downside, but a prolonged sell-off on high-quality assets is irresistible,” McBride says.

The focus here is on quality companies, ones that may not only survive a recession, but actually thrive, by expanding their competitive advantages. In contrast, weaker or heavily indebted companies may falter as economic conditions deteriorate.

“Continue to focus on long-term strategies that seek to capitalize on innovative and growing businesses that aid in the digital transformation of all organizations,” says Jerry Frigon, President and Chief Financial Officer of Taylor Frigon Capital Management.

stock value

Value stocks are another notable area to outperform, as they have during rising prices or during a market downturn. “Investors are accustomed to growth and outperforming stocks, but 2022 provided a powerful lesson about which stocks and sectors tend to thrive in an environment of rising interest rates,” Keller says.

He expects bond yields to continue to rise from here, which means value stocks can continue to outperform.

“We don’t feel like the 10-year Treasury yield has peaked yet during the cycle, and that should lead to continued strength in value stocks over growth stocks,” Keller says. “Investors haven’t seen this kind of environment in decades.”

technology stock

Tech stocks were among the market’s hardest hit, with even blue chips like Amazon dropping more than 50% from their all-time highs. the The Nasdaq Technology Index is down more than 30%. From its highest level in 52 weeks, and its most important components such as an Apple And Microsoft has fallen far short of its high annual watermarks. But such declines provide opportunities to move forward.

“Programs are likely to do well once price increases have subsided and the long-awaited ‘recession’ has or doesn’t happen,” Frijon says. “One is hard-pressed to find a space that has better growth currently, or in the future, than it does in that space.”

Keller agrees: “If and when a market bottom appears in the first half of 2023, we look at the technology as a fantastic longer-term opportunity, given the significant downturn that has occurred since late 2021.”

Tadros also thinks tech stocks could do well in 2023, after being a long-term winner over the past decade. He also believes that health care and utilities may perform well, as they “tend to be relatively stable and less vulnerable to economic downturns.”

Small company stocks

Small cap stocks are usually one of the first to take a hit when investors get a whiff of a recession. they Smaller size and less financial capabilities Making it a riskier proposition, compared to the big stocks. But it’s important to look at the opportunities here carefully because small-cap stocks have the potential to grow at higher rates and generate better returns for investors.

“Most investors are letting the pessimism of the moment prevail in the way of recognizing the excellent value that is found in many small and medium-sized companies,” says Frijon.

Choosing a few good small businesses can lead to big returns for years to come.

How should investors navigate a potentially rocky 2023?

Many investors view the first six or nine months of the year — and the concurrent recession — as a slow period that sets investors up for better returns later in the year.

“We feel that with the advent of fall, the stage will be set for a strong recovery from the cyclical bear market in 2022-2023,” says Keller.

But even if this stock recovery slips into 2024, the bear market simply provides more time for long-term investors to make their investments at lower prices. “Most experienced investors find long-term wealth-building opportunities during bear markets,” says Raju.

Here’s how experts say to navigate the market in 2023.

Think long term

Investors should look beyond today’s gloom and realize that today’s low prices are likely to be seen as bargains in just a few years’ time.

“This is a great time to invest as valuations have fallen to more reasonable levels,” McBride says.

While the market may be rocky in the short term, even over the course of all of 2023, investors considering exiting three to five years It shall be amply rewarded over time.

Go slow and steady

“The best way to invest in this type of market is to have a small amount of money,” says Josh Answers.

Wealth is built over time, so investors must stay disciplined. For many investors, this discipline involves adding money to the market regularly using a process called Average cost in dollarswhich helps you avoid the risks of putting all your chips on the table at the wrong time.

“The stock market has been down 15% to 20% for months in a row, so for dollar cost averaging investors, you keep buying a $1 bond for 80-85 cents,” McBride says.

By investing regularly, you can avoid buying too high, but you also keep your focus on maximizing your investment when it’s lower, and achieving better returns for years to come.

“A lot of people are scared now because of volatility, but that shouldn’t scare you if you’re investing on a small, frequent scale,” says Josh Answers. “Slowly and frequently, once a month, we’ve kept this market alive.”

stay invested

You can’t get long-term market returns unless you keep investing, but that’s exactly what’s hard to do when stocks are down. However, it is necessary to continue to invest.

“You want to stay fully invested and keep your regular investments because at some point this market is going to start to pick up and that tends to happen when the headlines are still pretty ugly,” McBride says. “You want to be on the train, not on the platform, when it pulls out of the station.”

One way to help you stay invested is to take… passive investment approach, which helps take your emotions out of the game. Set up your account to buy stocks or index funds on a regular basis and then not even look at the market.

“As a proponent of passive investing strategies, bubbles and recessions are nothing to worry about,” says James Pickett, financial coach and writer for the personal finance website TinyHigh.com. “Market timing is simply not part of the passive investing philosophy.”

Coincidentally, this is the same approach advocated by the legendary investor Warren Buffettwho advised most investors to contribute regularly to S&P 500 Index Fund.

minimum

Many market watchers expect 2023 to be a rough time, with a lot of volatility. But whether it ends up getting easier or tougher, investors have some proven long-term investment strategies that can help them beat this market. And even if 2023 ends up being another tough year for investors, there is likely to be a stronger rebound for the following year, which means now is the perfect time to get more investment at lower prices in anticipation of a bounce back.

This story originally appeared on Fortune.com

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