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Top 5 Investing Trends For 2023



1. Watch Out for Layoffs

The popular social media hashtag for the year may be #layoff, as since mid-November, numerous employees have been laid off from major tech companies such as Meta, Amazon, Lyft, and Twitter.

Although high-profile tech firms have experienced significant layoffs, other sectors have also suffered losses. Real estate start-ups like Better, Redfin, and Opendoor have reduced headcounts due to increasing rates and home prices that have led to a drop in mortgage applications, sales closures, and corporate revenues.

As financially constrained public corporations attempt to bolster their balance sheets in anticipation of a potential recession, the traditionally robust labor market in the United States could be at risk in the coming year. Although experts predict that recent college graduates will not struggle to find job opportunities, entry-level positions have less of an impact on a company’s financial bottom line.

This may result in a negative impact on unemployment rates for mid-career individuals, especially those in tech-related fields. In order to reduce costs, businesses may implement more streamlined staffing procedures, leaving a wealth of talented workers on the sidelines in order to satisfy shareholders.

2. Hybrid Robo-Advisors May Have a Moment

Parameter Insights’ recent data reveals that in 2022, investors departed from self-directed investment tools such as robo-advisors and brokerage accounts at an astonishing pace. While there are several theories about this exodus, two theories are prominent: affluent investors may be gravitating towards conventional financial advisors, and do-it-yourself investors may be willing to wait out the market’s recovery with cash reserves.

Regardless of the reason, hybrid robo-advisors, which offer algorithmic investment services as well as access to traditional advisors, may generate a lot of interest in 2023.

Inflationary times have made consumers demand more value for their money, and hybrid robos, which offer expert advice at a low cost, seem to be in sync with the zeitgeist. By combining features such as automatic rebalancing and tax-loss harvesting with access to financial advisors, and typically charging a lower fee than traditional advisors, hybrid robos can cater to cost-conscious investors who crave guidance.

Therefore, in this price-sensitive economy, investors are more value-driven than ever, and hybrid robos appear to offer the best of both worlds for those seeking direction but are concerned about the costs.

3. Consider Alternative Investments

Regarding broader diversification, alternative investments may finally become a part of everyday investor portfolios in 2023.

Irrespective of your net worth, risk tolerance, or time horizon, it is advisable to increase your allocation to alternatives in your 2023 portfolio. As they have a low correlation with conventional asset classes such as stocks and bonds, alternatives can help mitigate the volatility caused by inflation and recession while potentially boosting returns more than just relying on dividend stocks.

Once only available to accredited investors and experienced traders, everyday investors can now access alternative asset strategies, such as commodities and managed futures, via a decent selection of low-cost exchange-traded funds (ETFs) and mutual funds.

Although expense ratios for these funds are higher than the average fund, the performance of alternative assets may more than compensate for the higher costs.

4. America Remains an Inflation Nation

Inflation was the pervasive economic issue of 2022 – it clung to everything. From gas pumps to grocery stores to 401(k)s, investors faced higher costs and less valuable dollars to invest in the future.

The big question for 2023 is whether inflation will drop to the Fed’s 2% target rate. Many experts believe that it is unlikely, although it’s worth noting that the Fed’s six 2022 rate hikes will take time to have an impact on the economy.

Morningstar predicts that the Fed will loosen monetary policy and reduce interest rates to around 3% by the end of 2023. However, if this occurs, it won’t assist in the fight against inflation. This implies that Treasury Inflation Protected Securities (TIPS) and I bonds will remain popular investments for fighting inflation.

5. Savings Bonds Are Still Sexy

If there’s a positive aspect to the inflationary situation, it’s the newfound popularity of savings bonds – particularly Series I savings bonds. In April 2022, the I bond rate skyrocketed to a historic high of 9.62%, contrasting with the S&P’s year-to-date decline of 15%.

Investors looking to secure that remarkable rate bought $979 million in I bonds on Friday, Oct. 28 – the last purchase day before the semiannual rate reset – and overwhelmed the Treasury Direct website. It was like the U.S. Treasury was selling tickets for a Taylor Swift concert.

For those seeking returns on their excess funds, I bonds with a lower, yet still attractive rate of 6.89%, are available until April 30, 2023. Although illiquid for one year after purchase, it’s hard to argue with a guaranteed return rate backed by the full faith of the U.S. government.

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Economy News

Marketmind: Counting down the $70 billion to a debt deal




Marketmind: Counting down the $70 billion to a debt deal
© Reuters. FILE PHOTO: U.S. President Joe Biden hosts debt limit talks with House Speaker Kevin McCarthy (R-CA), Vice President Kamala Harris and other congressional leaders in the Oval Office at the White House in Washington, U.S., May 16, 2023. REUTERS/Evelyn Hock

A look at the day ahead in European and global markets from Vidya Ranganathan

The week draws to a close with pretty much the same buzz around artificial intelligence and U.S. debt diplomacy that it kicked off with.

Stock markets were getting a breather after the excitement over the blowout forecast from chipmaker Nvidia (NASDAQ:) Corp and the follow-through rally in AI-related companies, which powered the Nasdaq’s best day in three weeks.

maintained its momentum, however, after data showed inflation again well above policy targets and as foreign money poured into the market.

But all eyes are on the U.S. debt ceiling debate, where it looks like President Joe Biden and top Republican lawmaker Kevin McCarthy are just $70 billion apart on discretionary spending, according to a person familiar with the talks.

The deal’s going down to the wire, which itself is a moving target. Treasury’s announcement of a slate of bill auctions for early next week had some market participants suggesting the debt ceiling’s so-called “X-date”, when the government runs out of cash, may not in fact be June 1. Figures on Thursday showed that Treasury’s cash balance is down to just $49.47 billion.

The deal is not final, and work requirements for anti-poverty programs are a sticking point as is funding for the Internal Revenue Service to hire more auditors and target wealthy Americans. But funding for discretionary spending on military and veterans is on, as per sources.

Meanwhile, markets are growing less confident that the Federal Reserve will keep rates on hold in June. The CME FedWatch Tool now puts the chances of a quarter-point rate rise to 5.25-5.50% on June 14 at more than 50%.

Main economic indicators on Friday include the U.S. Commerce Department’s personal consumption expenditures (PCE) price index figures for April, which could show a small rise similar to March.

Key developments that could influence markets on Friday:

U.S. PCE price index

ECB’s Philip Lane and Croatian central bank Governor Boris Vujcic speak at events

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Economy News

Inflation in Tokyo slows in May, but key gauge hits four-decade high




Inflation in Tokyo slows in May, but key gauge hits four-decade high
© Reuters. FILE PHOTO: A man buys fish at a market in Tokyo, Japan March 3, 2023. REUTERS/Androniki Christodoulou/File Photo

By Takahiko Wada and Leika Kihara

TOKYO (Reuters) -Core consumer inflation in Japan’s capital slowed in May, but a key index stripping away the effect of fuel hit a four-decade high, underscoring broadening price pressure that may keep alive expectations of a withdrawal of ultra-loose monetary policy.

The data for Tokyo, which is seen as a leading indicator of nationwide trends, showed companies continued to pass on rising costs to households in a sign inflationary pressure could last longer than the Bank of Japan (BOJ) projects.

The Tokyo core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, rose 3.2% in May from a year earlier, government data showed on Friday, roughly matching a median market forecast for a 3.3% gain.

While inflation slowed from the previous month’s 3.5%, it stayed above the BOJ’s 2% target for a full year as steady food price gains offset falling fuel costs, the data showed.

An index that strips away both fresh food and fuel costs rose 3.9% in May from a year earlier, marking the fastest pace of increase since April 1982 when Japan was experiencing an asset-inflated bubble.

“Inflation already appears to be overshooting the BOJ’s forecasts. Prospects of higher wages are prodding more firms to pass on rising labour costs through price hikes,” said Takuya Hoshino, chief economist at Dai-ichi Life Research Institute.

“Depending on how upcoming data plays out, there’s a chance the BOJ could respond to elevated inflation with a tweak to its ultra-loose policy,” he said.

Separate data released on Friday showed the price service companies charge each other rose 1.6% in April from a year earlier, marking the 26th straight month of gains, as the economy’s re-opening from pandemic curbs boosted tourism demand.

Japan’s economy is finally recovering from the scars of the COVID-19 pandemic, though risks of a global slowdown and rising food prices hang over the outlook for exports and consumption.

With inflation already exceeding its target, markets are rife with speculation the BOJ could soon phase out ultra-loose monetary policy under new governor Kazuo Ueda.

Ueda has repeatedly said inflation will slow in coming months as cost-push factors dissipate, and that the BOJ will maintain ultra-loose policy until stronger wage growth ensures Japan can sustainably see inflation hit its 2% target.

But he told a group interview on Thursday that the BOJ will “act swiftly” if its inflation projection proves wrong, and could tweak policy if the cost of stimulus outweighs the merits.

In a Reuters poll released on Friday more than half of the analysts surveyed expect the BOJ to start unwinding its yield curve control (YCC) policy by end-July, such as by raising the current 0.5% cap set for the 10-year government bond yield.

The BOJ will review its quarterly growth and inflation forecasts at a two-day policy meeting concluding on July 28.

Under projections made in April, the central bank expects core consumer inflation to hit 1.8% in the current fiscal year ending in March 2024. That is much lower than a 2.3% forecast in a poll released on May 15 by think tank Japan Center for Economic Research.

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Analysis-Wall Street prepares for Treasuries mess as default looms




Analysis-Wall Street prepares for Treasuries mess as default looms
© Reuters. FILE PHOTO: The Wall Street entrance to the New York Stock Exchange (NYSE) is seen in New York City, U.S., November 15, 2022. REUTERS/Brendan McDermid

By Gertrude Chavez-Dreyfuss, Saeed Azhar and Davide Barbuscia

NEW YORK (Reuters) – Anxiety is increasing in parts of Wall Street that rely on Treasury securities to function, with some traders starting to avoid U.S. government debt that comes due in June and others preparing to deal with securities at risk of default.

U.S. President Joe Biden and top congressional Republican Kevin McCarthy are closing in on a deal that would raise the government’s $31.4 trillion debt ceiling for two years while capping spending on most items, as a June 1 “X date” approaches for when the Treasury Department has said it could run out of money to pay its bills.

Treasury securities are used widely as collateral across markets. A key question for market participants is how would bonds that are maturing next month be treated if a deal is not reached in time and the Treasury is unable to pay principal and interest on debt.

One such area is the $4 trillion repurchase, or repo, market, for short-term funding used by banks, money market funds and others to borrow and lend. Some counterparties, including banks, were shying away from Treasury bills maturing in June in bilateral repos, where the trade is between two parties, said an executive at a U.S. fund manager who decline to be named. There are 14 T-bills maturing in June.

Scott Skyrm, executive vice president for fixed income and repo at broker-dealer Curvature Securities, said some repo buyers or cash lenders did not want to accept any bills maturing within a year. Skyrm said stress began to appear in the market at the start of May, with some lenders refusing to accept Treasury bills that they perceived as at risk of delayed payments in some types of trades. He declined to name buyers who were not accepting T-bills.

“I don’t think counterparties want to deal with collateral around the X-date,” said Jason England, global bonds portfolio manager at Janus Henderson.

An executive at an independent broker-dealer in the repo market who declined to be named said they were still financing Treasury securities for now. Their focus, instead, was on rewiring their systems in anticipation of steps that the Federal Reserve and Treasury might take to prevent a default. The executive said they expected to work through the weekend to get their systems in place.

At least three big banks that deal directly with the New York Fed in its implementation of monetary policy were also accepting all Treasury securities, three sources familiar with the situation said.

The dislocations in the repo market, a crucial source of funding for day-to-day operations of many financial institutions, come amid growing stress in financial markets as talks drag on in Washington. A default could have devastating consequences, as the $24.3 trillion treasuries market underpins not just the U.S. but the global economic order. 

To be sure, a default remains a distant possibility. Many market participants expect the Treasury will be able to continue to pay its bills after the June 1 date as it could conserve cash in other ways to prioritize debt payments. 

In the case that it needs to delay payments on some securities that are maturing, expert groups have suggested in the past that Treasury could help markets to keep functioning by extending the so-called “operational maturity date.” The proposal, detailed in a December 2021 contingency planning document prepared by an expert group, calls for extending the maturities of securities at risk of default by one day at a time.

That could allow the security to be technically traded and available for settlement on the Fedwire Securities Service system used for government debt. However, the group warned that it would need many broker-dealers to adjust their trading systems to also be able to do so and the consequences of a delay in payments on securities would still be severe. 

The broker-dealer executive said the process was cumbersome because maturity dates subsumed several other calculations about the value of the security. Extending the maturities required the firm to “basically break their own system,” the executive said. 

Even so, allowing the security to default would be worse. “If you don’t extend the date, I really don’t know what happens,” the executive added.

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