A 2023 Outlook: It Will Be Better Than It Looks

In 2022, we faced rising prices, market volatility, and recession fears. Can we expect some good news in the new year?

We always strive to keep you informed and help you stay on track toward your long-term financial goals. Today, we present a 2023 outlook provided by Brad McMillan, CFA®, CAIA, MAI, chief investment officer at Commonwealth Financial Network®, the firm we partner with to serve you. Brad summarizes the economic risks we face, along with his predictions for the economy and markets in the coming months. And, to answer the question above: yes, there is good news here.

If you have any questions about this outlook, please don’t hesitate to contact our office.

A 2023 Outlook: It Will Be Better Than It Looks

As we close out this year and look ahead to 2023, multiple questions may arise. As citizens, as workers, and as family members, we want to know: will we have a recession, and what will that mean for my loved ones and me? As investors, we watch the markets after a difficult 2022 and want to know: will we see a rebound or more declines? Overall, with everything that is happening, we wonder whether we might get something even worse, like a repeat of the Great Financial Crisis of 2008. Worry levels are high, and that is coloring everyone’s perception of the year ahead.

In some ways, this concern is warranted. Looking back at 2022, we have seen China struggle with the economic impact of the Covid-19 pandemic. We have seen crypto companies in the U.S. implode. We have seen the Russia-Ukraine war continue. And, of course, we have seen inflation reach 40-year highs as both stocks and bonds moved into bear markets. We know the risks are real.

When we look at the fundamentals for both the economy and the markets, however, things aren’t nearly as bad as headlines suggest. While we do face risks, the fundamentals are much stronger now than they were at the start of 2022. That should limit the risks and provide more opportunity in 2023.

The Economy

Headlines about the economy mostly revolve around inflation and the Federal Reserve (Fed), which continues to raise interest rates as we end the year. As a result of both of these factors, we can expect substantial economic slowing. Indeed, this is already apparent, especially in housing. Because the economic effects of interest rate hikes can take a year or more to show up in the economy, a recession is very possible next year if the impacts become severe enough. If we do get a recession in 2023, the good news is it’s likely to be mild and short lived.

The reason is simple. When we talk about the economy, we are mostly discussing consumer spending, which accounts for more than two-thirds of U.S. economic activity. Consumer spending depends on the job market—you can’t spend if you don’t have income. And, generally speaking, you don’t get a severe recession without a pullback in both the job market and consumer confidence.

The good news is that both remain strong. Job growth over the past 12 months is more than twice the level typical of past expansions. There are more than 10 million open jobs. Although the labor market does seem to be slowing, it has quite a way to go before it hits recessionary levels. With such a cushion, we are unlikely to see a recession until the second half of next year, and even that isn’t a certainty. Confidence has also pulled back but remains historically high. People are making money and spending money, and that will provide support for the economy, even in the face of higher rates.

Consumers aren’t the only indicator that a potential recession should be mild. Business confidence and investment remain healthy, driven by consumer spending and the strong labor market. So, while we do see slowing and may see a recession, economic fundamentals remain surprisingly strong.

The Effects of Inflation and Interest Rates

If the economy continues to grow, however, those strong fundamentals could keep inflation higher and keep the Fed hiking, leading to a worse recession. Even though this is a possibility, it’s not what the data is indicating. Inflation appears to have peaked, with most of the components turning down, and that trend is likely to continue. While the Fed will probably keep hiking interest rates, the rate of increase—and the ultimate peak—will roll over even as inflation does. As 2022 ends, we see evidence of that in the inflation data, and also in the bond market, with the yield on the U.S. Treasury 10-year note peaking and rolling over. This likely reflects an impending slowdown but also indicates that interest rate damage may be peaking as well. All of that provides a good foundation for markets.

The Markets

Much of the market damage in 2022 was caused by higher interest rates. If rates peak, the damage will subside; if they start to decline, we could see a tailwind. The declines in bond values in 2022 were linked directly to higher rates, but as rates moderate, those declines are unlikely to repeat. Beyond that, for the first time in years, bondholders are now being paid competitive rates of interest. Although the bond market took a big hit last year, 2023 is likely to be substantially better.

For stocks, the picture is more complex but relatively positive. Stocks were also hit by rising interest rates as valuations (which depend on rates) dropped. That said, while we entered 2022 with valuations at very high levels, we enter 2023 with much more reasonable valuations. They’re not cheap, but they are in line with historical averages. From a valuation standpoint, the risk to stocks will be much lower next year.

With valuations reasonable, though, the results for stocks will depend largely on corporate earnings. Here again, the headlines are discouraging: analysts have downgraded expectations. Beyond the lower sales a recession would generate, there are also concerns about corporate margins, with higher wages and debt service costs likely to affect the bottom line. Even if valuations hold, lower earnings are a headwind for stocks.

But here, too, there is good news. While the challenges are real, both wage growth and interest rates appear to be peaking, so the damage may be less than expected. Analyst expectations typically are too pessimistic, so this would be in line with historical results. And, as previously noted, any recession will likely be mild. There is certainly downside risk, but relative to expectations, there is more upside opportunity.

The Overall Outlook

As we head into 2023, worries about the economy and the markets have largely been incorporated in expectations and prices. This means that if things are better than expected—which seems probable on multiple fronts—the results should be positive, too.

After a difficult 2022, when the economy and markets adjusted to higher inflation and interest rates, supply shortages, and multiple other shocks, the natural expectation is that things will remain bad. What we are seeing in the data, however, is that the economy is doing better than expected, and inflation is in the process of being contained. We are making progress, and that progress should continue into 2023.

Will next year be a great year for the economy and markets? Probably not. Will it be better than 2022? That’s very likely, and it could quite possibly be substantially better. As a motto, “better than it looks” isn’t ideal, but as we enter the new year, we could be doing a lot worse. So, we’ll take it.

Certain sections of this commentary contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Investments are subject to risk, including the loss of principal. Past performance is no guarantee of future results. This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product.

Authored by Brad McMillan, CFA®, CAIA, MAI, managing principal, chief investment officer, at Commonwealth Financial Network®.

Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com

© 2022 Commonwealth Financial Network®



2021 Tax Organizer

CLICK HERE -> Generic Tax Organizer 2021 <- FOR THE 2022 TAX SEASON


Another tax filing season is fast-approaching.  We hope your 2022 new year is off to a great start.  Our entire staff appreciates having you among our good and loyal clients – thank you!

As was the case last year, Gallagher Financial Services offers various options that will allow our firm to effectively prepare your taxes.  Along with scheduling an in-office appointment, you have the convenient option to share your tax docs with us via our CCH iFirm tax portal.  Of course, you may still prefer to mail us your tax docs or drop them off in person – curbside options will be available!

Whichever method, please provide us with all your pertinent 2021 tax documents.  Included with this tax letter is a convenient checklist of common tax documents we’ll need this tax season.  As in previous years, clients with more elaborate taxes can also refer to our tax planner worksheets that are tailored to your unique situation.  A generic version of our tax planner is available at the top of this page.

This year, please consider getting us your tax documents in advance.  Even if you expect to owe taxes, it good to know in advance to allow for proactive planning.  For 2021, those who received advance child tax credits may be concerned about the tax consequences!  Importantly, you must bring us your IRS letter 6419 that shows the advance payments your received.  We need this information to reconcile the amount you received with the tax credit you are allowed.  In addition, we’ll also need to know the amount you received for the 3rd round of stimulus checks (the maximum was $1,400 per person, including dependents).   Let us know your contributions to charity (separate the amount for cash vs. non-cash donations). The next page explains the options available for us to prepare your 2021 taxes.

As always, please contact our office with your questions or concerns.  You can reach me by email at Mark@markgallagher.com.  You can reach Jeff Youngquist by email at jeff@markgallagher.com.  You can always call my office at 651-774-8759 and a member of my team will be eager to assist you!

Best Regards,

Mark Gallagher CFP®

2020 Tax Organizer

Click here -> Generic Tax Organizer 2020 for the 2021 Tax Season

After a rollercoaster year, the 2021 tax filling season is fast-approaching once again. Without a doubt, the Covid-19 pandemic has introduced a paradigm shift in our daily routines! As we all adapt to what’s been deemed “the new normal”, Gallagher Financial Services is committed to being here for you. We also are very grateful to have you among our good and loyal clients – thank you!

Amidst the concerns of a lingering pandemic that involves various forms of “social distancing”, Gallagher Financial Services seeks to provide viable options for us to effectively prepare your taxes. While we still intend to offer some in-office appointments, we also have other innovative alternatives. At the forefront, we’ve implemented a secure client portal called CCH iFirm that’s integrated with our tax program. This new portal will enable us to easily and seamlessly share tax docs back and forth with you. The CCH iFIrm platform even includes the option for you to electronically sign your tax return (similar to DocuSign).  Of course, you may still prefer to mail us your tax docs or drop them off in person – curbside options available!

Whichever method, please provide us with all your pertinent 2020 tax documents. This post contains a convenient checklist (found below) of common tax documents we’ll need this tax season as well as a link to our 2020 Tax Organizer (found above). As in previous years, clients with more elaborate taxes can also refer to our tax planner worksheets that are tailored to your unique situation.

This year, more than ever, please consider getting us your tax documents in advance. Especially folks who received unemployment benefits that may be concerned about the tax consequences! From our perspective, it seems best to know in advance – even if there’s negative new that allows time for some proactive planning. For those who are tech savvy, we strongly urge you to use the new CCH iFirm portal.

To Use the New Client Portal – Utilize our New Client Portal to share your tax docs with us. This paperless option also has an option for you to review and electronically sign your tax docs.

  • Give us a call at 651-774-8759 to request to use the portal
  • Alternatively, email Jeff at Jeff@gallagherfinanialservies.com

Noteworthy Items:

  1. Stimulus Checks – The Economic Impact Payment you received is tax-free!
  2. Unemployment Benefits  – If applicable, we will need a copy of Form 1099-G
  3. Pandemic Relief for Business Owners – Include your PPP loan status, EIDL loans or advances, along with other government grants you received
  4. Medical Expenses – If you can benefit from itemizing, the amount of your medical expenses over 10% is deductible
  5. Health Insurance – If you buy your insurance through the MNSURE exchange, bring us a copy of the 1095-A
  6. H.S.A. Plans – If you’ve contributed or received distributions from a Health Savings Account, we will need Form 5498 and Form 1099-SA
  7. 529 Plans – MN allows a tax credit of up to $500 per year

As always, you may contact our office with your questions or concerns. you can reach us me by email at Mark@markgallagher.com or call my office at 651-774-8759 and a member of my team will be eager to assist you!

Charitable Giving Incentives Under the CARES Act

Presented by Mark Gallagher

With many individuals and families facing catastrophic hardships because of the COVID-19 pandemic, charitable giving to those most adversely affected has become increasingly important. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted in March 2020, included tax provisions designed to incentivize individuals and companies to make charitable contributions in 2020. The Consolidated Appropriations Act, 2021, enacted in December 2020, extends these incentives through December 31, 2021. These charitable giving incentives do not require that donations be made to charities assisting in the pandemic.

Above-the-Line Charitable Deduction
For the 2020 or 2021 tax years, each taxpayer can take an above-the-line charitable deduction of up to $300 for certain charitable contributions. Typically, charitable contributions are deductible only for individuals and couples who itemize their deductions; however, this new deduction applies only to those taking the standard deduction. Most taxpayers use the standard deduction since the passage of the Tax Cuts and Jobs Act of 2017, which removed many itemized deductions.

Contributions to a donor-advised fund (DAF) are not eligible for this above-the-line deduction; therefore, to take this new deduction, taxpayers should verify they are contributing to an eligible charitable cause.

Income Cap Removed for Charitable Contributions
Although the above-the-line deduction is not available for those who itemize their deductions, the CARES Act did make changes to certain tax limitations for those who itemize to incentivize larger gifts. For 2020 and 2021, the deduction available on cash contributions to charitable organizations has been increased from 60 percent of a taxpayer’s adjusted gross income (AGI) to 100 percent. Taxpayers can carry donations greater than 100 percent of their AGI to future years.

This applies only to cash contributions and not to long-term appreciated assets, which enjoy long-term capital gain tax treatment. The charitable deduction for long-term appreciated assets is still capped at 30 percent of AGI. For corporations, the deductibility of cash contributions has been increased temporarily from 10 percent to 25 percent of taxable income.

Like the restrictions related to the above-the-line deduction, the removal of the AGI cap does not apply to gifts made to DAFs.

An Excellent Time to Give
With so many in dire need of assistance, it’s a wonderful time to help the community through charitable giving. As a bonus for their generosity, individuals and companies should be sure to use these new tax incentives.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.


Mark Gallagher is a financial advisor located at Gallagher Financial Services at 2586 East 7th Ave. Suite #304, North Saint Paul, MN 55109. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 651-774-8759 or at mark@markgallagher.com.

Authored by the Investment Research team at Commonwealth Financial Network.
© 2020 Commonwealth Financial Network®