{"id":58055,"date":"2022-12-29T09:00:20","date_gmt":"2022-12-29T14:00:20","guid":{"rendered":"https:\/\/www.ino.com\/blog\/?p=58055"},"modified":"2022-12-27T13:54:59","modified_gmt":"2022-12-27T18:54:59","slug":"my-latest-prediction-for-2023","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2022\/12\/my-latest-prediction-for-2023\/","title":{"rendered":"My Latest \"Prediction\" For 2023"},"content":{"rendered":"

Back in March I posited the notion that the S&P 500 would need to fall to about 2,900 before all of the froth that the Federal Reserve had injected into the market through its various monetary stimulus programs dating back to the Great Recession had finally burned off. <\/p>\n

On Christmas Eve the S&P closed at 3844, which would put it 19% below its all-time high of 4,766 on December 27, 2021, or about a year to the day.<\/p>\n

In recent days some market prognosticators have been warning that the market is poised to fall another 20%, which would put the index at about 3,000, or slightly above my guesstimate. <\/p>\n

So do I feel vindicated, if that is the right word? No, and I hope I\u2019m wrong anyway.<\/p>\n

<\/div>\n

First, my guess was not a prediction, just a quick back-of-the-envelope calculation based on my assumption that the Fed was responsible for about half of the stock market\u2019s 600% gain between the March 2009 bottom of 683 and the time I made my comment. <\/p>\n

So, if we cut that 600% gain in half, that would reduce the S&P\u2019s gain to a still respectable 300%, or a little below 3,000. <\/p>\n

Not an educated estimate, maybe, but I thought a reasonable guess\u2014a worst case scenario, if you will.<\/p>\n

Second, we don\u2019t know if these bears will turn out to be right. I hope they\u2019ll be wrong.<\/p>\n

I now believe the Fed won\u2019t have to drive the economy into the tank in order to get inflation down to where it wants it to be, probably in the 2.5% to 3% range. <\/p>\n

Remember, about two years, in what was considered to be a major policy shift, the Fed said it was willing to let inflation \u201covershoot\u201d its long-term target of 2% for a time, as it indeed it did. <\/p>\n

Now it looks like inflation is dropping a lot faster than most people thought, and the Fed itself is now forecasting that inflation will fall to 3.1% next year before declining in 2024 to 2.5% and 2.1% in 2025, i.e., putting it at its long-term target.<\/p>\n

That, to me, is a reason to be positive about the market and the economy. Inflation is, in fact, coming down, and fairly quickly.<\/p>\n

Of course, my March \u201cforecast\u201d didn\u2019t assume that the solons at the Fed would see it that way. As we know, the Fed is often wrong, by wide margins and in terms of timing. Which is one big reason why the market has shown a predilection in the past few months to not believing the Fed when it makes a statement about monetary policy and inflation. <\/p>\n

Why should it? We\u2019ve been told countless times to \u201cdon\u2019t bet against the Fed\u201d or \u201cfollow the Fed,\u201d even when our gut tells us it\u2019s all wet. <\/p>\n

So my latest \u201cprediction\u201d is that we are a lot closer to the bottom in stocks now than another 20% drop would warrant, and that 2023 could be a good year for the market.<\/p>\n

As I noted in my previous column, there are many reasons to be optimistic about inflation. As the Wall Street Journal reported last week, \u201cThe Covid-19 pandemic might not be gone, but the\u00a0global supply-chain crisis\u00a0it spawned has abated. Goods are moving around the world again and reaching companies and consumers\u2026 Gone are the weekslong\u00a0backlogs of cargo ships\u00a0at large ports.\u00a0Ocean shipping rates\u00a0have plunged below prepandemic levels.\u201d<\/em><\/p>\n

\u201cChip inventories swell as consumers buy fewer gadgets,\u201d<\/em> another Journal article proclaims. \u201cSemiconductor companies slash production plans amid weak demand. The world is now awash in chips.\u201d<\/em><\/p>\n

The Fed has already raised interest rates close to what it says will be their end point. Gasoline prices have plunged despite the ongoing war in Europe. Used car prices have declined. Home sales have plummeted. Rental prices have dropped, to the point where builders are holding back on adding more supply. <\/p>\n

<\/div>\n

The main reason why inflation held so low and for so long\u2014technological developments that increased productivity and competition\u2014continue to benefit us.<\/p>\n

The only institution that has not gotten the disinflationary message is the U.S. government, which continues to spend as if we are in constant crisis mode. Witness the recent passage of the $1.65 trillion omnibus bill, which apparently few people in Congress actually read even as they passed it, and President Biden will no doubt be happy to sign. <\/p>\n

Can we expect any fiscal restraint when the Republicans take over the House next month? Probably not, but at least gridlock may constrain reckless fiscal spending at least a little bit.<\/p>\n

Conclusion: The Fed\u2019s job is almost done, barring some new unforeseen crisis. That should give us some optimism for 2023.<\/p>\n

George Yacik<\/a>
\nINO.com Contributor<\/p>\n

Disclosure: This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Back in March I posited the notion that the S&P 500 would need to fall to about 2,900 before all of the froth that the Federal Reserve had injected into the market through its various monetary stimulus programs dating back to the Great Recession had finally burned off. On Christmas Eve the S&P closed at […]<\/p>\n","protected":false},"author":16,"featured_media":58056,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[6920],"tags":[1750,230,14810,3554],"class_list":["post-58055","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ino-com-contributors","tag-inflation","tag-interest-rates","tag-sp-500-sp500","tag-the-fed"],"yoast_head":"\nMy Latest "Prediction" For 2023 - INO.com Trader's Blog<\/title>\n<meta name=\"description\" content=\"We are a lot closer to the bottom in stocks now than another 20% drop would warrant, and 2023 could be a good year for the market.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.ino.com\/blog\/2022\/12\/my-latest-prediction-for-2023\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"My Latest "Prediction" For 2023 - 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