2023 Stock Market Predictions, & Why You Should Ignore Them

It's that time of year again...when we see stock market predictions being released by financial institutions, fund managers, financial media personnel, and other financial “experts.” Most of these predictions end up being wildly inaccurate, yet they keep being made, and many keep listening.

Click to listen as host Joe Allaria uncovers how these "experts" did on their 2022 predictions, and what they're saying about 2023.

Listener Question
What will the stock market do in 2023? We're talking about that for the whole show, so be sure to tune in! 

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Disclaimer: All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal, or investment advice. Investing involves risk of loss and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an Investment Adviser Representative of CarsonAllaria Wealth Management, a Registered Investment Advisory firm. Information discussed on this podcast may be derived from third parties that are believed to be reliable, but CarsonAllaria Wealth Management does not control or guarantee the accuracy or timeliness of such information and disclaims all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.

Transcript

Joe Allaria: 0:00

Welcome, ladies and gentlemen, to the Retirement Power Hour. My name is Joe Allaria , and this is episode 17. This is the second episode of 2023. It is early in the year, and that can only mean one thing that the fortune tellers, the psychics, the soothsayers, the prognosticators have come out with their 2023 stock market predictions. And so we are going to look at those predictions today. And we're going to talk about them. And we're also going to look back at 2022 and see how those same soothsayers, prognosticators, and future seers did on their 2022 predictions. And after that, we'll be able to surmise how much weight should we put into what these predictions are? And should we base our own investment decisions on what these experts say they think is going to happen? And I might be giving away the answer a little bit, but I don't want to give away too much before we get into it. So with that, before we go into it, I wanted to remind everyone you can go to retirementpower podcast.com to view and listen to all of our past shows. And you can also schedule a call with me if you are getting close to retirement, if you are wondering if you can retire or if you can retire safely. And maybe you want to get a second opinion on your retirement planning. Well, you can do that. You click work with me, you schedule your call, and then we'll have a conversation over the phone. I'll ask you a few questions and we'll start from there. That is complimentary. It does not cost anything to schedule that phone call and to have that call. Also, I'm going to ask a favor of all of you that have listened. If you start, if you listened going back to 2022, or maybe you're just listening now, if you please go to Apple or Spotify and leave a review, a written review would be best. That helps us spread our message to those that are out there that need so desperately to hear good information as opposed to the fear mongering that goes on in the financial media today. We are here to tell the truth, to help everyday investors, like many of you out there. So it's so important to get our message out because we are inundated with the wrong messaging, with fear mongering, with a bunch of media companies that just want to get more subscriptions. So please do those things. I appreciate it. Share, leave a review, and feel free to schedule a call on our website, retirement powerhourpodcast.com. All right, with all that being said, we usually start every show with a question. And I'm gonna just use today's question as the basis for the show. And the question is one I've received many times. What is the market going to do this year? What is the market going to do in the next few months? Clients have asked, and people outside of the office will ask me, friends of mine, family will ask me. And I get so I get the question a lot, what is the market going to do? Well, my response is usually that my opinion isn't worth much on that topic. And I give my opinion usually, but it's not worth much. And today's show is gonna illustrate that. It's gonna show that trying to predict markets is not only difficult, it's nearly impossible. And we're gonna see that based on all of these large, powerful financial institutions and their absolutely horrible track record at predicting the market. And so that's what we're gonna talk about today as we get into it. So, first, let's talk 2022. Now, 2022, if I had to summarize, we saw multi-decade highs in inflation. We saw the Fed raising interest rates very aggressively, and growing concerns about economic and earnings recessions, and that hurt stocks and it hurt bonds, and it hurt them uh pretty significantly. The SP 500 was down 18.1% for the year, the NASDAQ was down 32.9 percent for the year, and basically the SP 500 hit its high in January, the first trading day of the year, and it was all downhill from there. Bonds had their absolute worst year ever in 2022 with U.S. bonds were down 13%. So we have data going back to 1926 from BlackRock. Bonds had their worst year ever, negative 13%. The next worst year was 1994, and that year bonds were down 2.9%. So we so we went from 2.9% last year, 2022, the bonds were down 13%. So it was a very rough year for bonds, and why was that? It was because of the Fed, it was because they were raising interest rates, hiking rates, and they did it so quickly, so aggressively, it really hurt bonds as a result. But now yields are up, bond yields are as high as I've seen them in recent history. So we will get into what we think that means for bonds going forward here in a bit. The stock market, the stock market had its seventh worst year in 2022, down 18.1%, as I mentioned. We hit some milestones going back to bonds. We hit some milestones in 2022. And as I said, it was the worst year ever. It capped off the worst three-year period ever in bonds. It was the first time that we had a four-year period where bonds are negative, and the first time we had a five-year period where bonds were negative. We used to be able to say we've never had a four-year period where bonds are negative. Well, we've now seen one, which still gives us a little indication that, hey, this is not common, but we have seen one, and uh that's something we couldn't say before. So we're living through some pretty big events, not necessarily ones that we want to live through, but nevertheless, here we are. Now, what was said about 2022? I want to get into some of the predictions that were made about 2022, about the market and where these big, large financial institutions thought the SP was going to be at the end of the year, and what did they think the SP was going to do in 2022? So, starting with the Luthold group, the Luthold group saw the SP going up by about 5% in 2022. Morgan Stanley saw the SP going down 9%. They were one of a few that I could find that actually saw the SP going down by 9%. Wells Fargo saw the SP going up 9%. Goldman Sachs saw the SP going up 7%. RBC Wealth thought the SP would go up 6%. And as I mentioned, the SP was down 18.1%. So when I took those five predictions and averaged them all together, I found that that these folks were on average 21.7% wrong. They weren't off by 1%, 2%. On average, they were off 21.7%. I mean, think about it. If you're Goldman Sachs, you thought the market was going up 7%. Well, it went down 18. So that's a 25%. So that's one indication, like I say, when these companies put out these predictions and these estimates, they do it every year as if almost as if that's what it's going to be. And maybe that's not their intent, but investors take it that way. And the problem is everyday investors like you and me will take these predictions and will make investment decisions based off of them. And they will try to time the market, which we believe cannot be done consistently and effectively, and it will lead to real losses. Do you know how much it takes, how much it costs to make a prediction about the market? Zero. It doesn't cost these companies anything to make predictions. But it can cost everyday investors real money if you're taking these and you're taking them these as gospel and you're buying and selling based off what these people think. Most often they are not right. Most often they are completely wrong. And that's why we do this topic every single year to prove that, to show that a lot of times the predictions are not even close. And every year that I've done this, we've done it for three years now, the predictions have not even been close. A few more predictions for 2022. There were predictions about volatility. And Ryan Ermy from Acorns actually said that he thought there would be extra jumpiness in the market, but he said it was due to it would be due to midterm elections. Well, he was partially right. We did see some extra volatility in 2022. In fact, in 2022, we saw 46 days where the SP 500 moved more than 2%, either up or down. 46 days. If you look back 10 years, it would be more typical, it has been more typical to see about nine days, maybe 10 days, that you would see a 2% change on any one day. We had 46 in 2022. So he was partially right about the volatility, but he got there the wrong way. He said it well be due to midterm elections. Well, we know I don't want to say it had nothing to do with midterm elections, but it had much more to do with inflation, with rising rates, and with Russia-Ukraine and all of those factors combined. Next, Sarah Potter, fact set contributor. She said at the beginning of 2022 that inflation would drop sharply in 2022. We know that that was not only a little wrong, that was a lot wrong. Inflation did not drop, it continued to increase in 2022, and we saw it peak in June at 9.1%. And the annual inflation rate is at its highest that it's been since the 1980s. And then we have Merrill and Bank of America made some sector predictions. They said that looks like there was opportunities in small caps, which could be at the point of resuming a multi-year leadership in terms of returns. So did we see small caps outperform large caps? Well, you tell me.1% difference. Large value was actually up 0.26%, and small value was down 2.4%. So large value did better than small. So in that instance, large did better than small. So they were wrong there. And then large growth was down 40.4%, small growth was down 33.31%. So small did a little bit better in the growth sector. But we still haven't found any anybody that was hit the nail on the head in terms of their predictions. And then Jeffrey Gunlock. Jeffrey Gunlock, some people referred to him as the bond king. He's a billionaire bond manager. And he said oil, he said this in March. He said oil is going to hit $200 a barrel. $200 a barrel. And what happened? Oil didn't hit $200 a barrel. It peaked out at $119.65 in 2022. And it ended the year at $80, around $80 a barrel. So a far cry from $200 a barrel. Now, these are people that are highly regarded. These are companies that are highly regarded as financial experts, these financial titans. And so again, when I appreciate when people ask me what's my opinion. But in an effort to remain humble and honest, that's why I tell them, look, I'm one person. Most of my time is spent educating and meeting with clients. So I'm not sitting in front of a Bloomberg monitor trying to analyze the market as the information comes in, nor would do I believe that would do any good. Because these companies not only have individuals doing this, they've got teams of analysts and researchers trying to figure out how they should be invested. And we can see here, this is one year, but go back and watch last year's and listen to last year's episode on the same topic, but it's year after year. And at least a couple analysts out there will admit to the buffoonery of this exercise making predictions. So I said this on last year's show, but Jason Lee from Reuters said, I have been attempting to predict the future for nearly 40 years. At this time of year, I attempt to look a full year ahead. And it's difficult to do if not impossible. And at times seems a bit pointless. So, Jason, why do you keep doing it? Well, probably because Reuters pays Jason to do that. That's his job, make predictions. So that's his job. Is his job to help you make better investment decisions? No, it's not in his best interest. I'm sure he's doing it, making the predictions to the best of his ability, but he has no ability to see into the future just like none of us can. So it ends up hurting folks. And then Michael Arone or Arone from State Street, he says, and I quote, the yearly ritual when strategists fool investors into thinking they can gaze deeply into their crystal balls and predict the future. Please don't misunderstand me. Investors want to be fooled. They are complicit in this silly business. Despite overwhelming evidence, to the contrary, investors desperately want to believe that there are so-called experts who can accurately and consistently forecast investment outcomes. I'm going to read that last part again. Despite overwhelming evidence, to the contrary, investors desperately want to believe that there are so-called experts who can accurately and consistently forecast investment outcomes. He says, over the previous seven years, I'm a respectable 14 for 21, 67% in my prediction accuracy. So he's making light of that, and I appreciate that from him. He works for State Street. Part of his job is to put out a forecast, but he's telling you that hey, if if I if I'm getting things right, it's probably just dumb luck. And this whole exercise is a bit silly to try and predict short-term market moves, right? Short-term market moves. Markets can be much more predictable in the long run, but in the short run, stocks, even bonds, they're very difficult to predict. So let's talk about 2023. Now we have 2023 end-of-year targets for the SP 500. Now I've just shared with you lots of predictions from 2022. Now I know that after hearing all of those predictions for 2022, that you are going to take these 2023 predictions with an enormous grain of salt, and you're not going to use these predictions as a basis for your investment decisions. What I'm trying to help all the all of you listeners out there to understand is that no matter what anyone tells you, no matter who they work for in the financial world, no matter what TV channel they're on, they cannot see into the future just like you can't. So we've got a wide range of predictions for 2023. The SP 500 at the end of 2022 was at about 3800. 3800. And so with that in mind, Morgan Stanley predicted that the SP will would be at 3,900 by the end of the year. BlackRock, very similar, 3930. So that would be a slight increase. Barkley's actually had the SP going down to 3675. Goldman Sachs, Bank of America, HSBC all predicting the market, the SP to end the year at 4,000. Again, that would be a 0 to 10% increase. RBC wealth, same 4,100. Then we start to see people that are a little bit more positive on the year. JP Morgan targets 4,200 at the end of the year. Bemo and Nuveen, 4,300. Wells Fargo, 430 to 4,500. And the Luthold group, which I believe we started all this with, they're targeting 5,000. So 5,000 when we started the year at 3839, that's a 30% increase for 2023. So you've got anywhere from negative market predictions to a 30% increase for the year. And now here are some other more specific, nuanced recommendations, or not recommendations, but predictions. Michael Arone, the same person that I mentioned before from State Street. So I don't want to throw him under the bus because he is doing the right thing, telling everyone that's reading his articles that, hey, I don't know. This is just what I think, but take it with a grain of salt. But he says he thinks financials will outperform the market, so the financial sector. He thinks European stocks will beat U.S. stocks. He thinks that real assets will outpace the 60-40 portfolio. David Wagner from Capital Advisors. He says volatility most likely to continue, could stay high in the months to come. Now, here's interesting on bonds from Vanguard. Vanguard says US bonds will return 4.1 to 5.1% per year over the next decade. So that's a decade-long prediction. So I would say more likely to be correct when you're looking at a decade because it's a longer time period. But that's an interesting prediction. So we'll have to follow that one. David Ryan says value stocks will continue to outperform growth stocks. IMF said about inflation, the worst is yet to come. We don't know. We'll see. Motley Fool said the opposite. They said that US inflation would end the year far below expectations. And the Motley Fool also said they think that healthcare will be the top sector in 2023. And they said that Apple will fall below $100 a share, which is well below where it's trading right now. So what will actually happen in 2023 and which sector will be the best? Hopefully, by this point in the show, you can say and answer this correctly. And the answer is we don't know. We don't know. So there are a couple keys that we all need to remember when we're making our investment decisions. We need to be diversified. We need to maintain an allocation that's consistent with our risk tolerance. And having a financial plan and a retirement plan, that's a great tool to inform those decisions, right? And we've got some predictions for 2023 that really should be predictions in every year. Prediction number one, stocks will fluctuate in 2023, and they might do better than bonds, but they also might not. The market, number two, the market will have some months with positive returns and probably some with negative returns too. Number three, if excess volatility does occur, it will likely affect stocks more than bonds. And we saw that in 2022. Number four, whether warranted, whether it's warranted or not, the financial media will report on a world-altering crisis. Warranted or not, remember that part. So whether there are things that are that are serious things, and they're things that are big deals, we've seen that the last couple years. But whether it's warranted or not, I guarantee the media is going to report on something and they're going to make it seem as if it's a big deal and a bigger deal than what we dealt with in the past. They're going to sell you that this time is different. And what we found is this time has never been any different in terms of what its effect has been on the markets. Yes, it's been different in terms of the returns, the events that occur, but these principles that we believe that apply to long-term investing have worked over long periods of time. The fifth and final prediction in 2023 is that we believe that investment decisions that are backed by those financial plans will be most effective at helping you achieve your financial goals. So, did we make any stock predictions? No. Do we make any market predictions? No. Why? Because we showed you why. The experts in 2022 got it way wrong again. Because we continually see them getting things wrong, we're not going to listen to them for 2023. And we know that predicting the timing of sector performance is arguably impossible. So we choose to remain diversified and use fundamental principles of investing. And use that in conjunction with a retirement plan and a financial plan to reach our clients' goals and help them reach their goals. Well, it's always fun to rag on these big companies. I don't mean to sound any certain way and throwing them under the bus. But I do think it's incredibly important that we are responsible with the information that we put out. Even this show, even me, if I put out predictions and I said, I think this sector is going to do this and this sector is going to do that. Some of you out there listening might believe me. You might think that I know what I'm talking about, and you might base your decisions off what I'm saying. Even if in my mind I'm just thinking, well, I don't know what's going to happen, but I'm still going to make predictions because why not? Well, this isn't a Super Bowl winner prediction. This isn't the final four bracket prediction. We need to be careful as an industry to not be putting these things out there because real people like you make decisions based off of things that people like us say. And we need to be very aware of that. And unfortunately, I don't see these predictions stopping anytime soon. But hopefully you've listened to this and now you have the right perspective on it. So with that, I want to thank everyone for joining today's show. Again, just a reminder, you can go to retirement powerhour podcast.com, click work with me. If you have questions about your situation and would like a retirement plan, if you're within five years of retirement, and we can help you. We can start by having a conversation. Just going to ask you a few questions. We're not going to ask you to give us any information that you don't want to give, but you can click work with me and we'll start there, hopefully helping you build out your retirement plan or your financial plan. So retirement powerhour podcast.com. And don't forget to tune in next time on the Retirement Power Hour, where we help listeners invest wiser and retire better. Take care.

Speaker: 23:38

Thank you for listening to the Retirement Power Hour Podcast. All material discussed on this podcast is for educational purposes only and should not be construed as individual tax, legal, or investment advice. Investing involves risk of loss, and investors should be prepared to bear potential losses. Past performance may not be indicative of future results. Joe Allaria is an investment advisor representative of Carson Allaria Wealth Management, a registered investment advisory firm. Information discussed on this podcast may be derived from third parties that are believed to be reliable. But Carson Allaria Wealth Management does not control or guarantee the accuracy or timeliness of such information, and displays all liability for damages resulting from such sources. Any references to third parties are provided as a convenience and do not constitute an endorsement.