What To Look For As We Enter Into 2023

2022 was a year of losses punctuated by uncertainties between three potential outcomes: inflation, a soft landing scenario, and recession.

We saw the 2-year and 10-year yield curve maintain a months-long inversion, typically signaling a recession. We saw the GDP exceed two negative quarters of growth, typically signaling recession. Yet the recession debate, whether we’re already in one or not, still dominates the financial media space,

Looking to the New Year, there is a wide range of speculation, from likely to outrageous.

As a trader, your angle toward approaching the markets might be a bit different. Perhaps you’re looking to day trade or swing trade the markets. Perhaps you’re willing to go short and long the markets. Either way, it’s important for you to pay close attention to the economic reporting this year, if only to avoid surprises that could have been anticipated ahead of time.

So, here’s what you need to know as we enter 2023.

The Fed Is Trying To Slow The Economy

If the Fed is trying to slow economic growth, any indication that the economy is picking up steam, whether in spending, jobs growth, or higher-than-expected GDP, is likely to be met with a negative market outcome.

Markets Are Extremely Sensitive To Economic Data

The economy is balancing between a recession and higher inflation. Some Wall Street analysts are saying that the Fed can’t ease inflation unless it tips the country into a recession. We can’t predict what’s going to happen. But we can tell you that economic data releases are going to be met with a lot of volatility, which is something you can either exploit or avoid (depending on your trading strategy).

Inflation Is Still A Major Issue

Is inflation really easing, or is the latest CPI and PCE data a head fake? There’s no way to be certain about this until it’s finally over. In 1974, inflation peaked at 11.05% to reach a low of 5.74% in 1976. And then inflation surged to 13.55% in 1980. Inflation may be peaking, but like any trade, don’t assume an outcome until it’s over.

A Deeper Recession Is Still A Major Issue

Several economists and analysts have penciled in a recession in 2023. They differ in their outlook of a recession’s duration and depth. But most agree that it really is in the Fed’s hands, as monetary policy is likely to trigger what comes next. Some analysts predict a “Fed pivot,” where rate hikes reverse to rate cuts. Although the Fed tends to telegraph its intentions well ahead of time, those intentions will change if the economic data doesn’t match the Fed’s forecasts, So, pay close attention to the data!

As a side note, you can follow the market price action to gauge its response to the economy, but you might not want to do this without looking at the fundamental data. The market has not yet shown capitulation, at least from a technical perspective.

You can wait for capitulation, but it helps to follow the economic data as well.

The Bottom Line

Making forecasts is tricky, especially when the outlook is hotly debated and varies considerably among experts. If anything, it gives traders multiple outcomes to consider depending on how the market and economic environment shape up. But to find opportunity in these outcomes, it helps to understand the fundamental context and conditions that can shape each one. So, pay attention to all of the major economic releases, follow the markets fundamentally and technically, and be sure to seek trades whose potential returns are much higher than their potential losses. Happy New Year 2023!


Please be aware that the content of this blog is based upon the opinions and research of GFF Brokers and its staff and should not be treated as trade recommendations.  There is a substantial risk of loss in trading futures, options and forex. Past performance is not necessarily indicative of future results.