Exploring Opportunities in the Global Stock Market: Unlocking Profit Potential in 2023

There is an old adage on Wall Street: “Sell in May and go away.” In theory, on a calendar basis, the worst months to be invested in the stock market are from May to November.

Whether this is true or not is anybody’s guess, but last year it certainly was. Today, investors must decide how best to position their portfolios for the rest of 2023. Should you buy dividend-paying stocks, longer-duration bonds to lock in yields, or invest money overseas? Before you can answer any of these important questions, consider what the Federal Reserve might do with short-term interest rates for the rest of the year to combat inflation, and how the debt ceiling gets resolved. Both issues will impact the direction of the markets and, quite possibly, your investments.

READ: 4 Key Asset Allocation Strategies for 2023

Interest rates & inflation

Since the fall of 2021, the Federal Reserve has struggled with the issue of inflation. At first, they considered it transitory, but last spring inflation became the real deal. Consequently, the Fed had to aggressively raise interest rates nine times. Fortunately, inflation has begun to come down, from over 9% to 5%, but the Fed’s inflation target is 2%. This means the Fed still has some more work to do. There is a chance with the latest regional banking crisis in March, small businesses and individuals will find it harder to get loans from their local banks, which, in turn, could slow down the economy. However, the Fed is poised to raise interest rates at least one more time on May 3. After that, it will be data-dependent, with the unemployment and consumer price index numbers being scrutinized carefully to get a read on inflation.

Debt ceiling

Looming in the not-too-distant future, the debt ceiling issue could turn into a full-blown crisis if the Republicans in the House of Representatives and President Biden do not raise the debt ceiling before the government is no longer able to pay its bills.

Treasury Secretary Janet Yellen has warned Congress that time is running out — if the April tax receipts are not high enough, the due date could be as soon as early June instead of August. Republicans would like to extract spending cuts from the Democrats/President Biden in exchange for passing a debt ceiling resolution. At this point in time, neither side wants to compromise. If they do not find common ground, the country could face financial Armageddon by defaulting on its debt. The consequences would be catastrophic. We came close to a debt default in 2011. Because of that threat, America’s debt rating was downgraded by Standard & Poor’s from AAA to AA+ for the first time. A default could make borrowing costs increase, cause a massive sell-off in the stock market, or bring on a recession.

READ: What Does a Recession Mean for Your Finances?

Investment ideas

Despite higher interest rates, inflation, and the debt ceiling issue, the stock market is the greatest discounting mechanism ever created. By the time all the bad news comes to fruition, investors are already looking ahead and markets tend to climb a proverbial wall of worry and go higher. Knowing this, where are logical places to invest money for the rest of 2023?

Dividend-paying stocks

When markets are volatile and the headlines are scary, a great place to ride out the storm is with a diversified mix of blue-chip dividend-paying stocks. Invest in companies that can increase their dividends regardless of what economic cycle we are in. Today, stocks that provide meaningful and growing dividends are in the consumer non-durable, industrial, energy, and utility sectors. Another positive is that these stocks have been underperforming year-to-date versus the largest technology stocks and should be able to weather a recession because their products tend to be essential.

Bonds and money market funds

After the worst bond market in decades and much higher interest rates, now is a decent time to buy bonds or money market funds. In the bond market, you may want to consider a barbell approach. You do this with bond ladders, where you buy both short-term bonds and long-term bonds. If you do this, you could benefit if interest rates rise because you will have new money from your shorter-term maturities to reinvest annually. If interest rates drop, you will get appreciation on your longer-term bonds. If you want to have more liquidity and less interest rate risk, you can keep your money in a brokerage money market fund yielding almost 5%. 

International stock market

For the first time in a decade, the international stock market is outperforming U.S. stocks. This makes sense for a myriad of reasons.

First, the dollar has quite possibly peaked; when this happens, international companies make more money by selling their products to consumers in the United States. Second, China has recently reopened for business after three years of tight COVID-19 restrictions. Third, international stocks are inherently cheaper. Today they trade at significantly lower price earnings multiples. And finally, Americans typically have a home investment bias and may be under-allocated overseas. If international stocks continue to outperform, money could move out of the U.S. to international markets to find higher returns.

The bottom line

It has not been easy being an investor since the spring of 2020 and the pandemic, but despite all the volatility and negative headlines, we believe you have been better off staying invested through all the ups and downs. Moreover, for the first time since 2008, if you want to play it safe, you can own short-term bonds and brokerage money market funds. They all yield close to 5%. For longer-term investors, collecting dividends from great companies here and abroad is not a bad way to go either. 

Frederick Taylor is a Partner, Managing Director at Beacon Pointe Advisors, LLC. The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. Consult your financial professional for guidance specific to your circumstances.