Wealth management leaders in the closing months of 2022 weren’t holding back about momentum lost and the hard times ahead. A new year and encouraging updates from the Federal Reserve appear to be changing tunes, but firms say they’re still in no rush to put serious skin in the game.

Brad Larsen, managing director and market executive for Bank of America Private Bank in Los Angeles, said that out-of-control inflation and persistent rising interest rates, among other symptoms of oncoming recession, have most investors piling out of stocks in favor of stockpiling. But amid the doom and gloom is evidence that the recession might not last as long or be as severe as the waning months of 2022 would have had you believe, Larsen said.

He said signs point to “a shallow recession” with a slight decline in GDP by year’s end.

“Unemployment is just so low right now, and the general population still has a lot of money in savings after dealing with the pandemic,” said Larsen. “That’s keeping the consumer going, and considering the user economy is 70% consumer-based it’s what is keeping everything afloat.”

Larsen estimated the Fed would continue to raise interest rates through March – increasing by 25 basis points to a range of 5% to 5.25%. That’s in the ballpark of other estimates from other major banks and in line with the Fed’s own projections.

“Then, a pause. Once the Fed pauses, that’s when we’ll start to restart the upswing. We just have to get through March and into April. Until then, there’s not a lot of things you’ll want to do, because it is going to be bumpy,” said Larsen.

Dip buying

Combined with a recovery in the global supply chain and an easing on price pressures for goods, an interest rate halt would go a long way toward boosting confidence in the market. As investors aggregate their cash, Larsen said they’ll want to keep an eye out post-March for dip-buying opportunities that likely won’t last long.

e’re calling that for the second half of the year stocks will perform well,” said Larsen. “You need to be in the market by the time that happens. You can’t just wait it out.”

These months will help separate industry-defining companies and promising, intelligent-run newcomers from competitors who rode high off the cash-flush market tides of 2020 and 2021 despite a lack of solid long-term business plans.

“Before the money really returns, we’re going to see a lot of bloodshed,” said Philip Danisi, an employment attorney and former Wall Street broker with a background in financial law. “During the pandemic a lot of money flooded the market, which sent the prices up. But if you’re an institutional investor – even an individual investor – you’re going to be looking at the supply and demand and asking where we’ve gone too far.”

Danisi highlighted the tech industry-leading FAANG stocks – or Meta (formerly Facebook), Amazon, Apple, Netflix and Alphabet (formerly Google), which collectively fell around 34% over the course of 2022 – as no-brainers for institutional investors looking to jump back into the market in the latter half of the year, expressing particular confidence in Amazon and Apple.

Cure for Crypto

While bullish on digital currencies in the long term, Danisi said the industry would likely end up being “a prime example of the wheat being separated from the chaff” by year’s end. Crypto has not only suffered the same problems as the overall market, Danisi said, but recent scandals such as the FTX collapse have retail investors approaching the industry with excessive caution, and that’s doubly true for institutional investors.

“What Sam Bankman-Fried did was on a Madoff scale, and as slapdash as it looks compared to Enron, they knew what they were doing and were not going to act without doing the research,” said Danisi. “So there will, over time, be greater monitoring and more regulations. Once that happens, that’s when you’ll see the banks and other institutional investors showing real enthusiasm.”

Based just on the recovery of Bitcoin in the early weeks of 2023 – which gained just over 25 percent year to date as of Jan. 18 – Danisi said there’s already strong evidence of enthusiasm for a stronger, smarter crypto industry.

“It won’t be an easy year, but it will certainly be an interesting one,” said Danisi.