2023 Stock Market Predictions, & Why You Should Ignore Them

Speaker 1 (00:00):

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 gonna talk about 'em. And we're also gonna 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, how much weight should we put into what these predictions are, and should we base our own investment decisions on what these experts say is they think is gonna happen. Before we go into it, I wanted to remind everyone, you can go to retirement power hour podcast.com to view and listen to all of our past shows.

Speaker 1 (01:07):

You can also leave a review and, uh, you can get all the resources that we've had on previous 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, uh, 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, 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 gonna ask a favor of all of you that have listened. If you, if you listened, going back to 2022 or, 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.

Speaker 1 (01:56):

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 wanna 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 power hour podcast.com. Alright, 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?

Speaker 1 (02:53):

Well, my response is usually that my opinion isn't worth much on that topic, and I, I give my opinion usually, but it's not worth much in today's topic. Today's show is gonna, 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 they're absolutely horrible track record at predicting the market. And so that's, that's what we're gonna talk about today as we, 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 s and p 500 was down 18.1% for the year.

Speaker 1 (03:59):

The Nasdaq was down 32.9% for the year. And basically the s and p 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, US bonds were down 13%. So we have data going back to 1926, uh, 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 went from 2.9% last year. 2022 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, and they did it so quickly, so aggressively. It really, really hurt bonds as a result. But now yields are up, uh, bond yields are, you know, as high as I've seen 'em in recent history.

Speaker 1 (05:00):

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. Uh, 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 were 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, we couldn't say before.

Speaker 1 (05:49):

So, you know, we're living through some, you know, some pretty big events, not necessarily ones that we wanna live through, but nevertheless, here we are Now, what was said about 2022, I'm gonna get into some of the predictions that were made about 2022, about the market and, uh, where these big, large financial institutions thought the s and p was gonna be at the end of the year. And what, what did they think the s and p was gonna do in 2022? So starting with the lu hold group, the Luth hold group saw the s and p going up by about 5% in 2022. Morgan Stanley saw the s and p going down 9%. They were one of a few that I could find that actually saw the s and p going down by 9%. Uh, Wells Fargo saw the s and p going up 9%.

Speaker 1 (06:36):

Goldman Sachs saw the s and p going up 7%. RBC wealth thought the s and p would go up 6%. And as I mentioned, the s and p 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%. If you think about it, you know, if you're Goldman Sachs, you thought the market was going up 7%, well, it went down 18. So that's a 25% difference. 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 gonna be. And, 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, 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.

Speaker 1 (07:51):

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, you're taking these as gospel and you're, you're buying and selling based off what, 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, every single year, 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, about volatility and uh, Ryan Erie 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.

Speaker 1 (08:48):

Well, he was partially right. We did see some extra volatility in 2022. In fact, in 2022 we saw 46 days where the s and p 500 moved more than 2%, either up or down 46 days. If you look back 10 years, it's, it's, it would be more typical. It has been more typical to see about nine days, maybe 10 days that you saw 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, well, it'd be due to midterm elections. Well, we know, I don't wanna 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, uh, she said at the beginning of 2022, that inflation would drop sharply in 2022.

Speaker 1 (09:53):

Well, 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 as it's been since the 1980s. 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, if we look at large blend versus small blend, large blend stocks were down 14.5%. Small blend stocks were down 14.4% <laugh>. So a 0.1% difference, large value was, was actually up 0.26% and small value was down 2.4. So large large value did better than small. So in that, in that instance, large did better than small.

Speaker 1 (10:56):

So they were wrong there. Uh, 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, we still haven't found any, anybody that was, you know, 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, uh, he said, oil is gonna hit $200 a barrel, $200 a barrel. And what happened? Well, oil didn't hit $200 dollars a barrel. It, it peaked out at $119 and 65 cents in 2022. And it ended the year at 80, do 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.

Speaker 1 (11:57):

And so again, when I appreciate when people ask me what's my opinion, but in, 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, uh, of a Bloomberg monitor trying to analyze the market as as information comes in. Nor 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, uh, episode on this same topic, but it's year after year and they're missing the mark. At least a couple analysts out there will admit to the buffoonery of this exercise making predictions.

Speaker 1 (12:56):

So I, 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. Uh, I attempt to look a full year of 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. Um, it's 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, hurting folks. And then Michael, a 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 un misunderstand me.

Speaker 1 (14:00):

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 gonna read that last part again. De 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 2160 7% 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.

Speaker 1 (15:06):

Markets can be much more predictable in the long run. But in the short run stocks, even bonds, they're very difficult to predict. Let's talk about 2023 now we have 2023 end of year targets for the s and p 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 gonna take these 2023 predictions with a, with an enormous grain of salt. And you're not gonna use these predictions as a basis for your investment decisions. What I'm trying to help all of the, all of you listeners out there to understand is, 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 with that being said, I'm gonna share, we've got, we, we've got a wide, a wide range of predictions for 2023.

Speaker 1 (16:10):

So you have, right, or excuse me, the s and p 500 at the end of 2022 was at about 3,800. Morgan Stanley, uh, predicted that the s and p will would be at 3,900 by the end of the year. BlackRock very similar, 39 30. So that would be a slight increase. Barclays actually had the s and p going down to 36 75. Goldman Sachs, bank of America, HSBC, all predicting the, the market, the s and p to end the year at 4,000. Again, that would be a zero to 10% increase, RBC wealth, same 4,100. Then we start to see people that are a little bit more positive on, on the year. JP Morgan, uh, targets 4,200 at the end of the year, BMO and Nuveen, 4,300 Wells Fargo, 43 to 4,500. And the Luth hold group, which I believe we started all this with, uh, they're, they're targeting 5,000.

Speaker 1 (17:10):

So 5,000 when we started the year at 38 39, that's a 30% increase for 2023. So you've got anywhere from negative market predictions to a a 30% increase for the year. And now here are some other more specific nuanced recommenda or not recommendations, but predictions. Michael Orone the same person that I mentioned before from State Street, so I don't wanna 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, 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 US 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.

Speaker 1 (18:08):

Now here's interesting on, uh, bonds from Vanguard. Vanguard says US bonds will return 4.1 to 5.1% per year over the next decade. So that's a, that's a decade long prediction. So I would say more likely to be correct when you're looking at it at a decade 'cause 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. Uh, IMF in a Reuters article says, inflate 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 in 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, where it's trading right now.

Speaker 1 (19:07):

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.

Speaker 1 (20:09):

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, you know, there are things that are, that are serious things and there are, there are 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 gonna report on something and they're gonna make it seem as if it's a big deal and a bigger deal than what we dealt with in the past. They're gonna 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, that we believe that apply to long-term investing have worked in over long periods of time.

Speaker 1 (21:10):

And we haven't ever had a, an event that has derailed the stock market to a point where it hasn't recovered or the bond market for that matter. 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, any market predictions? No. Why? Because we showed you why the experts in 2022. They 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 ar arguably impossible. So we choose to remain diversified and use fundamental principles of investing and, and, and use that in conjunction with a retirement plan and a financial plan to reach our clients' goals and help them reach their goals.

Speaker 1 (22:16):

Well, you know, it's always fun to rag on these big companies. Um, I, I don't mean to to sound any certain way in 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 gonna do this and this sector is gonna do that. Some of you out there listening might, 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 gonna happen, but I'm still gonna make predictions because why not? Well, this isn't a Super Bowl winner prediction. You know, this isn't the final four, uh, bracket prediction. We need to be careful as an industry to not be putting these things out there 'cause real people like you make decisions based off of things that people like us say.

Speaker 1 (23:10):

And, uh, we need to be very aware of that. And unfortunately, I don't see these predictions stopping anytime soon, but, uh, hopefully you've listened to this and now you have the right perspective on it. So with that, I wanna thank everyone for joining today's show. Again, just a reminder, you can go to retirement power hour 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, uh, we can help you. We can start by having a conversation. Just gonna ask you a few questions. We're not gonna 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 and hopefully helping you build out your retirement plan or your financial plan. So retirement power hour 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 2 (24:06):

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 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.