We are at the start of the period in which companies release their results for the fourth quarter of 2022, known as earnings season. With everything going on—inflation, rate hikes, a labor shortage, the strength of the dollar, a pending recession, the list goes on and on—the results are unusually uncertain this time around. Analysts are struggling to figure out exactly what all this means.

With the new Congress taking office—and specifically the extended time it took for the House Republicans to elect their new speaker—markets are increasingly focused on the potential effects of politics on the economy this year. I have had several questions about the debt ceiling in particular, so let’s take some time and think through what all of this might mean.

December saw a sell-off, reversing some of the bounce from October and November and leaving markets up for the quarter. Unfortunately, that only reversed a small part of the damage done earlier in the year. 2022 closed as one of the worst years in recent memory for financial markets.

As we wait for tomorrow’s jobs report, there is a lot of angst in the air. One of the most predicted recessions in history is very likely to hit this year. The manufacturing business sentiment survey yesterday was down, seemingly confirming that outcome. The Fed is looking to substantially weaken the labor market, in search of lower inflation, and according to the meeting notes released yesterday, is going to keep raising rates until that happens. All of the signs are that the jobs market will weaken significantly. But the question remains, is the job market actually going to weaken?

Earlier this week, I discussed what 2022 taught us about risk. Today, I want to talk about what I will be doing to manage risk in 2023, given those lessons.

For investors, 2022 has been a tough year. We had bear markets in both stocks, which is fairly common, and bonds, which is not common at all. They both happened at the same time, so rather than being saved by diversification, portfolios got hit twice. Even portfolios that were designed to weather market storms, such as a typical 60 percent stocks and 40 percent bond allocation, were hit harder than anyone expected. 2022 was an exceptional year and not in a good way.

Since March 2022, the Fed has continued to hike rates in an effort to control red-hot inflation. Equity and fixed income markets, both at home and abroad, struggled as a result, with markets down in the high double-digits year-to-date. But the tide may be changing.

As we enter the new year, investors are questioning what happens next. It was a turbulent 2022, including a possible recession and a definite bear market in stocks and bonds. Worries remain, but we’ll start the year with real strengths. Employment and job growth are strong, which will keep the consumer economy healthy. Interest rates are likely close to peaking, and markets are fairly priced.

It has been a tough couple of days in the markets, and it looks like today will be another. Not only is the market down in pre-market trading, but this is also a quadruple witching day (i.e., when four types of derivatives all expire on the same day). That often leads to volatility and, in the context of the past couple of days, means today could be difficult as well. I see the effects in my portfolio, and you may have seen them in yours as well. Should we be worried? In a word, no.

With the regular meeting of the Fed underway, we now all wait with bated breath to find out what the decision will be. Well, in this case, there is not much doubt: it will be an increase of 50 bps. But we can still wonder about the wrapping on the present. To shift metaphors and get a bit ahead of ourselves, will Chair Powell come out and see his shadow, signaling six more rate increases? Or will there be sunny skies ahead?