2023 Stock Market Predictions and Why You Should Ignore Them

by | Mar 3, 2023

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.

It is early in the year, and that can only mean one thing; that the fortune tellers, the psychics, the soothsayers, and the prognosticators have come out with their 2023 stock market predictions.

But, whenever this happens, it’s incredibly important to first audit the track record of the predictor. Before you put too much weight behind their predictions, and before you make any changes to your own portfolio, we should evaluate how well these individuals or organizations have predicted events in the past. However, when doing so, you’ll see that the vast majority have failed miserably to predict market events, and they have failed often.

2022 in Review and Where to Go from Here?

The 2022 stock market year was certainly one to forget. Due to an aggressive rate hiking campaign by the Fed, bonds had their worst year ever, and stocks weren’t too far behind, notching their 7th worst calendar year.

How exactly did stocks do last year? The S&P 500, which generally represents the stock market, was down 18.1% for the year, while the Nasdaq was down 32.9% for the year. The S&P 500 essentially hit its high in January, the first trading day of the year, and it was all downhill from there.

I mentioned that bonds had their worst year ever, but just how bad was it? In 2022, US bonds were down 13%. The next worst year, according to BlackRock, was 1994, and when bonds were only down 2.9% that year (quite the difference).

This has left many investors searching for answers, and many are wondering, “what is the market going to do next?”

I receive this question quite often about the stock market, both in good times and in bad times. Before I ever answer that question, I remind the inquirer that my educated guess is just that; a guess. And, that neither me, nor my firm, nor any individual or any firm has the ability to accurately and consistently predict future market movements. Doing so would mean they’d have to be able to know the future.

Most of us accept that nobody can predict future events, but why do so many think financial “experts” and pundits can predict the short-term behavior of stocks?

How Accurate Were Expert Market Predictions for 2022?

With events so significant, surely these experts would have shared their foresight at the beginning of 2022, when they made their yearly predictions, right? Well, they didn’t.

The Leuthold Group predicted that the S&P would end 2022 up 5% (23.1% off). Morgan Stanley was one of few who even predicted a down market in 2022, predicting a decline in the S&P 500 of 9% (still 9.1% off). Wells Fargo predicted that the S&P 500 would be up 9% in 2022 (27.1% off). Goldman Sachs projected a positive 7% for the S&P 500 (25.1% off), and RBC Wealth projected a 6% incline. As previously mentioned, the S&P 500 was down 18.1% in 2022.

That means that this group of five were, on average, 21.7 percentage points wrong. Hmm…how can that be?

Well, if you look at these predictions year-to-year, it’s actually not too surprising. See last year’s article on this very same topic.

The Big Problem

Is it a big deal that these institutions were so wrong in 2022? It isn’t a big deal to them. None of these institutions were penalized for being wrong. They didn’t automatically lower their own revenue by being wrong. They weren’t prevented from making future predictions for being wrong. In fact, many of them made predictions for 2023, as if they were spot on in the year prior.

But, the fact that these institutions were so wrong might be a big deal to the investors out there who are listening and are making real investment decisions based on these predictions. They are listening to these predictions and they are trying to time the market based on what these financial prognosticators are saying, and often times, it leads to significant losses and/or lost opportunity.

Other 2022 Predictions that Experts Missed

There were also predictions about volatility in 2022. Ryan Ermey from Acorns actually said that he thought there would be extra jumpiness in the market, which there was, but he said it would be due to midterm elections. Well, he was partially right.

In fact, in 2022, we saw 46 days where the S&P 500 moved more than 2%, either up or down 46 days. If you look back 10 years, it has been more typical to see about nine days, maybe 10 days per year that you would see a 2% change on any one day.

But, was the 2022 due to mid-term elections? Hardly.

Next Sarah Potter, a Fact Set contributor, said that inflation would drop sharply in 2022. We obviously know that to be wrong, and not just a little wrong. Not only did inflation not fall in 2022, but it continued to increase until it peaked in June at 9.1%.

And then, Jeffrey Gundlach, a billionaire bond manager that some refer to as the “bond king,” said in March that oil would hit $200 a barrel. But, did oil even get close to $200 a barrel? No, not even close. Oil peaked out at $119.65 cents per barrel in 2022, and it ended the year around $80 per barrel, a far cry from $200.

At least a couple of analysts out there will admit to the ridiculousness of making annual predictions. 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.” I agree.

Michael Arone from State Street says, “Thankfully, the annual forecasting season is almost over. 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.”

2023 Stock Market Predictions

Yes, yes, yes, but what is the market going to do in 2023? If that is your thought, you should stop here, start at the top, and read again.

But, if you’re able to read the rest with an enormous grain of salt, there is an especially wide range of predictions for 2023 (keep in mind that the S&P 500 ended 2022 around $3,839).

Barclays predicted the S&P would decline again in 2023. Morgan Stanley, Citi, UBS, and BlackRock predicted a slight increase, publishing year-end targets of $3,900 to $3,930, respectively. Goldman Sachs, Bank of America, and HSBC all predicted the S&P would end the year at $4,000. RBC wasn’t far off with a guess of $4,100.

JP Morgan targeted $4,200, while BMO and Nuveen predicted a $4,300 close. Wells Fargo was a bit more optimistic with a range of $4,300 to $4,500, but the Leuthold Group topped them all with a year-end S&P target of $5,000, representing a 30% increase in 2023.

What Should I Do in 2023?

Regardless of the year, the predictions being made, and what is happening in the world, it’s important to remember key investing fundamentals. The first is diversification. Don’t put all of your eggs in one basket.

The second key is to understand your risk tolerance. We need to maintain an allocation that’s consistent with our risk tolerance, meaning one that we can stick with in the long run.

Thirdly, understand your time horizon. Stocks are higher probability investments over longer periods of times (10 years or more).

Lastly, making your investment decisions from the foundation of a financial plan will help provide more confidence and clarity in your investment decisions, and will help you keep the big picture in mind.

Our Predictions

If you can’t beat them, join them, right? So, here are my predictions for 2023. I predict that stocks will fluctuate in 2023 and they might do better than bonds, but they also might not.

I predict that the market will have some months with positive returns and probably some with negative returns too.

I also predict that if excess volatility does occur, it will likely affect stocks more than bonds.

Lastly, and most importantly, whether warranted or not, the financial media will report on a world altering crisis, and they’re going to make it seem as if “this time is different,” and perhaps that we may never recover.

However, what we’ve found is we haven’t ever had a market event that has derailed the stock or bond market to a point where it hasn’t recovered.

Will We Listen to the “Experts?”

No, because we continually see them getting things wrong. We’re not going to listen to them for 2023 or any other year. Instead, we’re committing to making sound investment decisions based on our own individual financial plans, and ignoring the media and financial pundits along the way. I hope that after reading this, you will do the same.

Want more help? Let’s chat.

Joe Allaria, CFP®

Joe Allaria, CFP®

Wealth Advisor | Partner

As featured in The Wall Street Journal, USAToday.com, CNBC.com, Nasdaq.com, and Yahoo Finance.

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