How Retail Investors can Navigate an Uncertain 2023

Authored by Jacob Sansbury, Co-Founder & CEO of Pluto

2022 was a difficult year for retail investors. Between record-high inflation levels, geopolitical conflict, and the meltdown of the crypto industry, it is no surprise that most retail investors are feeling uneasy in the new year. When surveyed, the biggest concern among retail investors in 2023 is the “impact of recession” (62%) followed by “increased stock market volatility” (49%). Even one of the world’s most prominent investment companies, BlackRock, has warned of a recession this year.

While market downturns like this can be extremely discouraging, what many retail investors don’t understand is that this is perhaps the optimal time to invest extra cash. Below I’ve illustrated the main economic trends retail traders should take into account this year while investing.

Implication of Macroeconomic Trends

One aspect that is particularly unique about this economic dynamic is that the unemployment rate is surprisingly low. According to the US Bureau of Labor Statistics, 233,000 jobs were added in December. However, while the overall labor market remains strong, certain sectors – like tech –t are laying off the excess headcount that was hired during the pandemic. The unemployment rate may rise significantly over the next few months, but it is doubtful that numbers will be as catastrophic as during the 2008 financial crisis.

Moreover, ongoing geopolitical conflict will still play a huge role in how we navigate the economy. As the war in Ukraine continues to disrupt supply chains and energy outlooks, developing countries will unfortunately suffer the most. Leading countries like the US will likely step in to aid struggling countries, which could further exacerbate the current economic issues.

Consolidation of the Tech Sector

Developments in 2022 have readjusted expectations for future tech industry growth. 2022’s tech stocks decline merely foreshadows a broader bear market, and potentially recession, in 2023. Ideally, tech will reemerge as a more lean, more efficient, and less excessive sector. In some ways the era of “Big Tech” is over, as more individuals and enterprises are interested in protecting bottom lines than hyper growth. While only the strongest tech players will make it through the recession, value stocks will carry the majority of 2023 returns.

Can Crypto Rise from the Ashes?

Crypto winter is poised to bleed well into 2023, with the FTX scandal – and subsequent contagion – as a driver of increased regulatory oversight. While we won’t see the full impact of the FTX meltdown on the broader crypto market for some time to come, we can be certain that more measures should be taken to both educate and protect retail investors in such a nascent space. Major exchanges must prioritize transparency and safety for their users to restore trust in crypto.

While the near-collapse of FTX has sent shockwaves throughout the industry, this is not the first major crypto exchange to bust and definitely won’t be the last. Legislators across the globe are working tirelessly to finally solidify a clear regulatory framework, and ensure that the industry will protect consumers for the long haul.

Leveraging Technology to Eliminate Bias

In light of an unpredictable market, retail investors must be more nimble than ever to avoid damage. For less experienced investors, bear markets can certainly feel frightening. The stock market is cyclical, and will always experience ebbs and flows. Focusing on the real value of stocks – regardless of bullish or bearish sentiment – rather than short-term ROI is typically a safer bet.

Fortunately, now is an incredible time to be an investor, thanks to the widespread availability of technology and data-driven strategies that are widely available today. Automated trading platforms leverage data and execute precise trades so that investors don’t miss out on key opportunities. The more we can increase access to tools that remove emotional bias, the better outcomes everyday investors will have.

A silver lining is that a recession might actually help us get a handle on the inflation that is causing so many Americans to struggle. While volatile markets are not easy to navigate, empowering retail traders with advanced tools is key to leveling the playing field.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.