It’s the beginning of a New Year, but much of the gloom from 2022 is still hanging over the market. I can’t recall the start of a year in which investors had lower expectations for how assets will perform.
Some of the pessimism might be due to recency bias; 2022 was one of the worst years on record for a portfolio consisting of a combination of stocks and bonds, and one of the few where both asset classes were down by over double digits.
Yet, despite the low expectations and calls for a recession, most large banks are still forecasting for the S&P 500 Index (SPY) to post a positive return in 2023 with the average price target of $408 or a modest 6% gain. The price targets range from a low of $375 from Societe Generale to a high of $450 range from the likes of Deutsche Bank and JP Morgan.
These forecasts are merely reflective of the fact that since 1950, the S&P has enjoyed a 9.1% average annual return, so it’s not a bold call to be looking for a slightly below average year.
But, these price targets will likely prove to be useless on two fronts; it provides no roadmap for navigating the market throughout the year in which many analysts are expecting continued volatility and ignores the possibility of new lows in the first half before recovery in the back half of the year. So, expect prices to go up and down before landing slightly higher? Gee, thanks… loads of help that is…
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Also, forecasting an “average return” seems sensible in theory, but rarely works in reality; one year in which the S&P 500 averaged a 9.1% return, there was incredibly a gain of between 8-10% only four times. In other words, average isn’t always so average.
Of course, it’s always more instructive to see what people do, rather than what they say, and for the past few weeks investors have been reducing exposure.
Withdrawals from passive ETFs, such as SPY, hit record levels heading into the last week of 2022.
This looks like the beginning of cash raising, which is a healthy sign, but not likely a contrarian one… yet. This is still far from waving the white flag or a sign of capitulation associated with sustainable market bottoms.
I don’t know how this year will play out, I will trade the market in front of me with the expectation Options360 will once again deliver double digit returns.
Make sure you join us today to get in on all the action. Since everyone is already making their New Year’s Resolutions, why not make a resolution to increase your income? Joining is step one to making that goal a reality in 2023. Don’t wait, get started today!