ACPI Gateway Client Login
RBA Wealth Management Group

2023 Market Outlook

2023 Outlook: Need Picks, Shovels and Patience

As investors, 2022 was a year that we want to get beyond, but also an opportunity to learn lessons and apply them to portfolio construction. All major indexes around the
globe had negative results as investors lost clarity in forward views. The Russia/Ukraine crisis is now at one year of conflict and the war last year on inflation was equally disruptive and currently, more problematic for market forecasting.

Recession or Not?

There is a sizable variance of opinions on the recovery cycle. My viewpoint is we need some positive outlooks on the resolutions of the two wars. The Russia/Ukraine conflict, unfortunately, will continue to be disruptive and any resolution will involve multiple global political-based inputs, so I see no near-term resolution. I believe the effect on portfolios is built into the market values today, so without an expansion of the conflict, I, fortunately, see very little negative exposure forward but do not see markets advancing until we have some clarity on what the global resolution may be. The War on inflation is my largest concern. I have shared with many clients that interest rate increases are the textbook methodology for reducing inflation, but my instinct is that it will be a longer timeline before we get back to target inflation. This is based on two general points I believe the textbook has no historical testing to assist in predictive modeling.
  • 1 2 3 4 5

    Last Third of Life

    An influential amount of the North American population is in the last third of life and is in decumulation mode which encourages consumption at any price. In a lot of cases, this cohort of people is getting indexed pensions and receiving more interest income on deposit-based investments, which in effect is increasing their purchasing power.

  • 1 2 3 4 5

    Covid Economic Stimulus

    The amount and speed of global stimulusinjected into the economy during the shutdown phase of COVID were a historical first. The stimulus still has tailwinds and is still supporting economic expansion while current economic policies of interest rate hikes are trying to de-stimulate the economy to curb inflation. This overlap in opposing economic agendas will add time to reach the target.

I support that interest rate hikes are the only tactic for inflation control, and my above two observations prolong reaching the target. Recent data is suggesting that inflation is reducing, but markets will need more certainty and clarity of tenure to the target before we can see markets moving significantly upwards.

Portfolio Modelling for 2023 and Beyond

Our trading philosophy has not changed given the above. As in past letters to clients, an understanding of your cash flow requirements over the next 3 to 5 years needs to be part of the modeling for your portfolio allocations. Any funds required in this period should be in income-focused disciplines. Funds needed beyond a 5-year time horizon can stay in the growth bucket as we can accept the volatility for our stated horizon. Within the growth bucket we cannot be afraid to be wrong in the short term, but owning the right businesses over that tenure of 5 plus years assists to reduce the anxiety around volatility effects. This is the patience requirement.
2023 Market Outlook

The Growth Bucket – Picks, Shovels, and More Patience

Based on my above viewpoints, I am predicting that 2023 is a small positive year given that the shock of the Russia/Ukraine crisis is not new headlines and economic policies are being effectively implemented. As long as neither war gets a surprise negative news shock, then I believe the market bottoms have already been established in 2022. Unfortunately, I do not see new market highs this year and it will take into 2024 to evaluate this area and provide clarity on both.

A significant amount of analysts are predicting a more positive 2023 than I am, but we will be positioned in our growth bucket to accept an earlier arrival of market highs. In terms of what companies we prefer to own in the growth bucket, as always they must be a dividend leader with positive earnings offering picks and shovels as their product or service. Pick-and-shovel businesses are businesses we cannot do without in terms of our day-to-day needs. For example, we need hydro generation and transmission for a light switch to work or real estate buildings to provide locations to offer health care providers space. In the gold rush era, a small percentage of people found any gold to build wealth, but the sellers of picks and shovels made a small margin of profit on every transaction. We are not trying to invest in a company that might find the gold, we are investing in the sellers of picks and shovels for the core holds.

Our Current Buy Signal Methodology

The most important piece to successful investing is to buy a great business at the right price. Overpaying for a great business will not produce the results we are seeking. Given we believe that the volatility we saw through 2022 will continue into 2023, we desire to take advantage of the volatility to buy pick and shovel businesses at a discount. Given that we forecast 2024 as the year we establish clarity, we are analyzing our positions over two years to establish the buy signal.

Our typical buy signal is a business trading at a 15% discount to value including the dividend yield over one year. As you all know, we use the Morningstar database and its survey amongst the financial analyst opinion of median value as our one-year forecast. We are positioning this price forecast internally to be a two-year prediction to allow the time lag that we feel is evident in this recovery as suggested above. Internally this moves our buy signal to companies showing a Morningstar median value of 25% or more price discount in the next year, not the typical 15%. When we add a typical 5% dividend yield to year two, it pushes the two-year target number to a total of 30%, which equates back to our 15% average forecast per year. We believe most of these returns come in year two, hence the need for patience.

The Sell Side – Same Two-Year Overview

I will not detail the sell side as above, but we have also moved it to a two-year horizon and thereby in effect, we are getting our sell-side a little more aggressive than we typically engage.

Need for Managed Accounts

We have introduced managed accounts to most clients after achieving my associate portfolio manager designation almost two years ago. This change allows us to trade the portfolios in a structured manner without receiving prior consent from the client. This was the right decision for our practice to enhance the client experience. Given the overview of the trading methods above, it certainly allows us to reposition account holdings in a similar manner for all clients.

If your account has not yet been moved to a managed account, we need to have this discussion. The conversion project involves transitioning one client at a time and we have new employees that are ready to assist. Please contact Brittany at our office to set up a discussion with myself to review. Brittany can be reached at 519-538-5254 ext. 110 or by email at

R. Todd Campbell | CPA, BBA, CMA, CFP, CIM
Associate Portfolio Manager
RBA Financial Group

Like this article?