December 19, 2022
Forefront’s Monday Market Update
A Look Ahead to 2023
Over the past month, I have continually been asked to look ahead to 2023 and predict what the market will do. After all, some people believe that the value of a financial planner is predicting what will happen and building portfolios around that.
Predicting the Future
The only thing I can say with 100% certainty is that if my wife and I have made plans that we are looking forward to or have bought non-refundable tickets, one of my children will get a fever the day before. This is the only thing I know will happen for a fact!
At the beginning of 2022, the consensus on Wall Street from those who make a living predicting the markets said the S&P500 would end the year around 4,825. As Bob Eucker would say, “just a bit outside.”
In my nearly two-decades-long career, I will never understand how market prognosticators can be so wrong but still thought of as market genius by the media and the population.
The inability to predict the future doesn’t just lie with the stock market but with everything. We would have been much better off if someone could have correctly predicted the Covid Pandemic of 2020 or that Vladimir Putin would order a Russian invasion of Ukraine. I am sure someone reading this will say we knew Putin would invade. Easy to say in hindsight, but the brightest geopolitical figures across the globe, from various countries, all were working on this problem and were still caught by surprise.
Before We Look Ahead
Before looking at 2023, we all need to take a step back and understand what has happened and is still happening in 2022.
For the past two decades, every hiccup in the market has been met with some level of government intervention. This week’s market notes would be 4000 words if I broke down each instance. The Federal Reserve and US Government have either lowered interest rates, increased their balance sheet by buying bonds and injecting liquidity into the system, or flat-out bailed a company out. Because of this, many investors don’t remember what a traditional correction/recession looks like.
Between January and July, the market fell 20+%, but August saw the market pop. Most investors thought we were off to the races, and that is typically when the government would step in. This time, The Fed is working against the market by raising rates, and there is no savior in sight, so September saw the markets fall again and past the lows of July. This pattern is very typical of pre-September 11th, 2001 corrections.
Now, we are just bouncing along the bottom. Some weeks we get some good news, and the market pops 1000 points, followed by some bad news, and the market falls 1000 points. We can’t begin our move higher without a catalyst.
I don’t know what 2023 has in store for us, and as it has been proven repeatedly, making a prediction is useless. Not having specific knowledge about the future is a fact of life. Besides my kids getting sick before vacations and significant events, predicting the future is luck. Guessing or betting wildly is a quick way to end up with nothing.
Instead of trying to predict what will happen, it is better to build and create plans and portfolios that are meant to handle both good and bad. As we open our account statements and see them down 10, 15, or 20+%, hearing me blather on about diversification doesn’t make you feel any better. It is not supposed to. Feeling better comes from trusting the person who built your plan, not hearing them tell you about it.
The one voice I will listen to when they make predictions will be Vanguard. See, Vanguard doesn’t give one-year predictions but offers estimated market returns over the next ten years. Longer-duration stock market predictions have much more accuracy, as demonstrated by economist Robert Shiller in the 1980s. He was recognized for this insight in 2013 when he won a Nobel prize in economic science.
Being intelligently optimistic about financial markets moving forward is entirely possible without knowing precisely what is going to happen. I know that I would not bet on a single stock, asset class, or sector based on a “Wall Street Expert” who serves as a talking head for TV. Jumping into whatever is being pushed in a newsletter or CNBC is gambling, not investing, and if 2022 taught us anything, gambling in the stock market is painful; ask those who are overweight crypto. Alternatively, investing in the stock market gives you the proper perspective to make better choices. Everyone under 55 should be increasing their 401K contributions and funding investment contributions. Investing at lower valuations, historically, has led to gains over the long term. Gambling focuses on the short term and hits it big. Investing is about removing emotions and having patience.
So how does this impact all of you?
Predicting what the market will do doesn’t happen.
Intelligent optimism is the way to invest for the future.
Stock market calendar this week:
|MONDAY, DEC. 19|
|10:00 AM||NAHB home builders’ index|
|TUESDAY, DEC. 20|
|8:30 AM||Building permits (SAAR)|
|8:30 AM||Housing starts (SAAR)|
|WEDNESDAY, DEC. 21|
|8:30 AM||Current account deficit|
|10:00 AM||Consumer confidence index|
|10:00 AM||Existing home sales (SAAR)|
|THURSDAY, DEC. 22|
|8:30 AM||Initial jobless claims|
|8:30 AM||Continuing jobless claims|
|8:30 AM||Real gross domestic product revision (SAAR)|
|8:30 AM||Real gross domestic income revision (SAAR)|
|8:30 AM||Real final sales to domestic purchasers (SAAR)|
|8:30 AM||Chicago Fed national activity index|
|10:00 AM||Index of leading economic indicators|
|FRIDAY, DEC. 23|
|8:30 AM||PCE price index|
|8:30 AM||Core PCE price index|
|8:30 AM||PCE price index (year-on-year)|
|8:30 AM||Core PCE price index (year-on-year)|
|8:30 AM||Real disposable income (SAAR)|
|8:30 AM||Real consumer spending (SAAR)|
|8:30 AM||Durable goods orders|
|8:30 AM||Core capital equipment orders|
|10:00 AM||UMich consumer sentiment index (late)|
|10:00 AM||UMich 5-year inflation expectations (late)|
|10:00 AM||New home sales (SAAR)|