ProfitScore Update – December 2022
To the clients and friends of ProfitScore:
Contrary to what most bulls want to hear, the bottom for this current bear market cycle may not be in yet. Historically, a bear market has never ended before a recession has begun. Here is a snapshot of the US Market Index from Morningstar for 2022:
While it is impossible to know what will happen in 2023, the variety of predictions from the top financial institutions is amazing. Everything from “a hard landing remains the most likely outcome in 2023, and a recession is likely in the US” to “market resilience can surprise investors (S&P growth expected to be 7%).”
The stock market was highly volatile in 2022, with a frequency of intraday swings of more than 1% we haven’t seen since the Great Recession. As a result, the one common theme is that the market will probably continue to be volatile in the first part of 2023 as well. However, this is where things get interesting; about half of forecasters predict a rebound in the final part of 2023, and half see it continuing down or at least sideways.
As a refresher from one of our earlier commentary pieces, we pointed out that the market had never had positive returns when the Fed was not accommodative (going back to 2008, when asset purchases began at scale). It would seem that for the market to rebound sustainably, the Fed would need to pivot. If the Fed pivots, it is likely because we are seeing significant economic strain, an increase in unemployment, and a meaningful reduction in inflation.
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