Will the Stock Market Recover in 2023?

Stocks have gotten battered this year. When will things improve?

It's fair to say that 2022 has been a pretty tough year for stock market investors. Not only has the market been volatile, but many investors are seeing losses in their brokerage accounts and IRAs compared to the start of the year. And that can be very disheartening.

If your investments have taken a hit in 2022, you may be wondering if 2023 will be a better year for the stock market. And the quick answer? It's hard to say.

Some factors that have led to increased volatility could settle down in 2023, thereby allowing stock values to recover. But even if that doesn't happen, investors who are sitting on losses in their IRAs or brokerage accounts today don't have to lose sleep over it.

What does 2023 have in store for stocks?

A big reason the stock market has been so volatile this year is that inflation has been rampant. Another culprit is the Ukraine conflict, which has put pressure on global supply chains and just plain put the world on edge. Both factors, however, could improve in 2023, and if that happens, a lot of people could enjoy a nice recovery in their portfolios.

But we can't say for sure that inflation levels will start to taper off. The Federal Reserve is trying to make that happen by implementing interest rate hikes, but it could still take inflation a lot of time to cool. Plus, there's always the risk that the Fed's actions will spur an economic recession, and that could lead to prolonged stock market volatility.

What if the stock market doesn't recover next year?

If you're seeing losses in your portfolio, you may be eager for things to change. But even if stocks don't recover in 2023, you don't have to panic.

Ideally, the money you have tied up in your stock portfolio isn't money you expect to need anytime soon. And so if you're saving for a far-off milestone like retirement, you shouldn't worry if it takes time for the stock market to bust out of its slump.

In fact, let's imagine you're 30 years old right now and you're assuming you'll retire at some point during your 60s. At this stage of the game, it really doesn't matter if it takes the stock market six months to recover from recent events, a full year, or three years. All that matters is that it recovers eventually.

In the meantime, the best thing you can do to avoid long-term losses in your IRA or brokerage account is to leave your investments alone and wait for them to recover if they've lost value. If you sell off stocks in the near term due to panic, all you'll really do is lock in your losses. And if you're not desperate for money, there's no need to resort to panic-selling.

Besides, cashing out a portion of your IRA early could have steep financial consequences. You'll be penalized 10% of your withdrawal amount if you take money out of that account before turning 59 ½. Those penalties don't apply to withdrawals from a brokerage account, so you have more leeway there. But it's still best to leave your portfolio untouched while the market is down so you don't lock in losses you may otherwise avoid.