2022 ended as the most challenging year since the financial crisis (2008). Over the past year, the Federal Reserve raised interest rates by a cumulative 4.25%. This had a negative impact on stocks, real estate, and even bonds. When we look back at the stock market forecasts from the previous year, it appears that all of the experts’ predictions were incorrect. The median of the 12 forecasts was 4,825, but the highest prediction was 5,300, made by Brian Belski of BMO, and the lowest prediction was 4,400, made by Michael Wilson of Morgan Stanley.
As the market closed at 3839 in 2022, the Wall Street median forecast from 17 strategists for the S&P 500 at the end of 2023 was 4,000. The highest prediction, at 4,500, came from Binky Chadha at Deutsche Bank. The lowest prediction, at 3,400, comes from Michael Wilson of Morgan Stanley (watch our YouTube video).
The Conference Board has projected that a recession is likely to start at the beginning of 2023 and last through mid-year. Historically, a new bull market begins about two-thirds of the way through a recession, or about three months before the end of the recession. If the Conference Board’s projection is correct, this would mean that a new bull market will start between the end of the first quarter and throughout the second quarter. However, this assumption is based on the Federal Reserve pausing interest rate hikes while a recession starts. On the flip side, some economists argue that the inverse relationship between short-term and long-term Treasury yields might not be accurate enough for this prediction, as companies are still borrowing and unemployment remains relatively low. If this is the case, the Fed pivot could be delayed more than expected, and the bear market could continue like the serious ones, which on average last about 18 months, unless the worst, which is the 2000 tech bubble took two years.
Historically, a new bull market begins when market sentiment reaches an extreme low. This means that the market becomes skeptical about the Fed interest policy, rather than the Fed’s pivot being a given. A new bull market is not typically accepted by most while pessimistic projections are prevalent in the media. Additionally, some long-term indicators, such as the weekly and monthly Coppock curve, may show a buy signal.
The market collapsed in December instead of experiencing a Santa Claus rally after the S&P 500 (SPX) failed to challenge its 200-day moving average. Our long-term investment portfolio dropped by 9.87%, bringing its total return to 35.66% since May 2020 (click for our latest portfolio performance report). Our dynamic investment portfolio fell by 6.14%, resulting in a total return of -1.03% since May 2020. The SPX appears to have stabilized in a range between 3764 and 3906, although multiple resistances are making it difficult for the index to move higher. It’s important to pay close attention at this time, as the index could go in either direction.” (Watch our YouTube video).
The Fed is hiking further and faster than at any time in modern history. 2022 is on pace to be the first calendar year in which the money supply has declined 0.6% in the past 60 years. In this backdrop, it won’t be surprised to see the bear market has lasted longer than the average ones. Therefore, it’s critical to look at where the market is moving to at the current position (3860) within the range of 4100-3491. The market could reveal whether a recession will take place if the previous low (3491 for SPX) is undercut. In most cases, the market is more accurate than Wall Street.