An awful investing year comes to an end. What’s in the crystal ball for 2023?
Anew year’s worth of investing begins in one week. Anyone can make predictions, but long-term investors know it’s not prophecy that leads to profits.
A year ago, Wall Street consensus was for 2022 to be a pretty decent year of stock gains. The forecast was for a 10% increase for the S&P 500 stock index.
As this year’s trading comes to a close this week, the S&P 500 is down roughly 19% for the year — just shy of closing out in bear market territory.
It has been a brutal year for investors. Inflation fears, recession worries and a war in Europe have led to the worst year since 2008, when the Great Recession gripped the economy. This year is on track to be one of the top 5 worst years for the S&P 500 since the end of World War II.
So, what are the predictions for 2023? According to FactSet’s John Butters, up 13%. That’s the aggregate expected rally from stock analysts. If it holds, that would be a betterthan-usual historical return for shareholders. But that’s a big if. The Federal Reserve remains forthright in its resolution to fight inflation. The housing market will remain under pressure from higher borrowing costs. And Russia remains defiant in its war against Ukraine.
Analysts are most optimistic for energy and technology stocks in 2023. One of those sectors — technology — is beaten and bruised this year. The other was a shining bright spot in an otherwise dismal investing year. The consumer staples sector holds the most worry as a new year dawns, which makes sense if one is in the camp of “how deep and how long will the recession be.”
The end of a year brings investment optimism for the next the same way a New Year brings self-betterment resolutions. After all, the financial-industrial complex, like the fitness or diet industries, relies on selling a forecast of a brighter tomorrow.
There will be plenty of financial autopsies on 2022 — what portfolio mix tanked, what combination softened the blows. Yet shareholders, like the companies they invest in, must make decisions about the future, not relive the past, in their pursuit of profits.
Long-term investors would be wise to tune out most of this crystal-balling. They know successful portfolios must be a balanced diet of risk and reward.