Here’s What Happens in 2023
The calendar has scrolled to 2023… for good … or ill.
As a financial newsletter, we are duty-bound to hazard our annual market forecast — such as it is.
So today we fetch our crystal ball from storage, blow away the dust… and gaze for images of the year ahead.
How will the economy fare in 2023? Where will the stock market end the year? Gold? Oil? Bitcoin?
The answers — the guaranteed answers — anon.
Yet before we glimpse how markets will end 2023, let us observe how they ended 2022…
A Lean Harvest
In all, 2022 yielded a very lean harvest.
The Dow Jones Industrial Average shed 8.7% on the year — a barren field. But the Dow Jones sprouted a bumper crop against the other main indexes.
The S&P hemorrhaged 19.4% last year. The Nasdaq Composite absorbed a whaling even more vicious — down 33% in 2022.
Now imagine you purchased Bitcoin last Jan. 1. By Dec. 31 your digital “asset” depreciated a shrieking 65% in 2022.
How do you like it?
Not All Is Lost
Yet among the barren soil and the choking weeds some meager flowers emerged.
Gold scratched out a 0.2% gain in 2022. Oil, meantime, yielded a 0.5% return.
Slender, slender gains, it is true. Yet a slender gain is a jackpot against an 8.7%, 19.4%, 33% or 65% loss.
And so the man who clung exclusively to oil and gold reaped a relative jackpot in 2022.
Yet we will glance backward no more. Let us instead look forward into the year beyond. What can you expect for 2023?
“So Goes January, so Goes the Year”
For now we limit our crystal-gazing to Wall Street and the stock market.
“So goes January, so goes the year.”
That is an old Wall Street wheeze in reference to the stock market. If the stock market comes out of January in green numbers, it will likely close the year in green numbers.
If the stock market comes out of January in red numbers, it will likely close the year in red numbers.
Does this Wall Street lore have anything in it?
The Stock Trader’s Almanac — a sort of Old Farmer’s Almanac for the stock market — argues yes.
Its producers have thumbed through the stock market’s diary entries since the year 1900. This drudge work reveals this curious and relevant fact:
January’s performings aligned with the year’s performings some 75% of the time.
It is true, 75% is not 100%.
Yet 75% represents what the numbers men term “statistical significance.” And plenty of it.
The Early Returns
It is but five days into January and therefore far too soon to pull conclusions. Yet early indications are not entirely auspicious.
The Dow Jones has shed some 300 points since Jan. 3rd’s opening whistle. Both S&P and Nasdaq have endured parallel losses on a percentage basis.
Yet for emphasis: January is youthful and the stock market may end the month very deeply in clover.
We merely note its early doings.
Yet here is one ill omen for the stock market: positive economic news, this morning released…
Good News for Main Street, Bad News for Wall Street
Reports Yahoo Finance:
U.S. stocks sank Thursday after economic data showed private payrolls rose more than expected last month and weekly jobless claims fell to a three-month low, pointing to continued tightness in the labor market that’s likely to keep the Federal Reserve on track for higher interest rates.
That is, positive news for Main Street is negative news for Wall Street. We have observed the phenomenon several times these past several years, and remarked about it.
The entire business wars against the natural intuition.
A normal fellow, of sound mind, reasonably sane, might assume that rising payrolls and falling jobless claims would give a push to Wall Street — that what is healthy for the economic apparatus is healthy for the stock market apparatus.
It’s Alice in Wonderland
Yet today’s stock market runs to very strange and perverse settings. Positive economic showings leave Wall Street wringing its hands in dreadful worry… as Yahoo Finance reports… and for the reason it cites.
Positive economic showings blast a powerful signal that the Federal Reserve will stick to the warpath and continue raising interest rates.
In fairness, we place little faith in government-supplied economic data — particularly positive economic data.
Yet Wall Street takes it quite heavily. That is why your editor takes any notice of it whatsoever.
How much more positive economic news the stock market can absorb… real or imagined… we do not know.
Yet we hazard it may go to pieces in the face of additional economic joy.
Bad News for Main Street, Good News for Wall Street
But wait, what is this we learn? We have shoveled up news disturbing for Main Street — thus salivating news for Wall Street.
Money supply growth recently went negative… for the first occasion in 33 years. Thirty-three years!
That is, the rate of money supply growth did not merely slacken. It went into actual contraction — again, for the first occasion in 33 years.
And that is a poor economic augur, a worrying straw swaying in the wind. Ryan McMaken of the libertarian Mises Institute:
Money supply growth fell again in November, and this time it turned negative for the first time in 33 years. November’s drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years…
Money supply growth can often be a helpful measure of economic activity, and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make more loans. Recessions, on the other hand, tend to be preceded by slowing rates of money supply growth.
No “Soft Landing”
Once again, and to emphasize: Not only has money supply growth diminished — it has slipped into actual reverse. More:
That is generally a red flag for economic growth and employment. It also serves as just one more indicator that the so-called “soft landing” promised by the Federal Reserve is unlikely to ever be a reality.
We are compelled to agree. Any “soft landing” promised by the Federal Reserve is unlikely to ever be a reality.
The foregoing constitutes reliable evidence — in our estimation at least — that the United States economy is careening toward recession.
We estimate further that the gathering recession will settle in during 2023’s first quarter.
Thus we satisfy one of our predictions for the year. The economy will enter recession at one point during the first quarter — the second quarter at the very latest.
Wall Street Gets Its Pivot
Even the Federal Reserve will be unable to miss the recessionary realities. It will then take to the straightabout… and reverse course. It will begin lowering interest rates — and at a clip.
This we forecast for May, no later than June.
Wall Street will finally have its desperately desired “pivot.” That in turn brings us to our second 2023 prediction:
The stock market will recover its bounce this year — even if perhaps January ends in red.
The Dow Jones will close the year above 36,000. The S&P 500 will close the year above 4,300 and the Nasdaq will close the year above 15,000.
Gold will end 2023 near $3,000, oil above $125.
Bitcoin will end 2023 somewhere between $0 and $60,000.
Finally — though unrelated — the United States House of Representatives will elect a speaker sometime before midnight strikes on Dec. 31.
Yet it may be a near run thing.
Thus concludes our crystal-gazing for this year. We advise you to invest accordingly.
Our advice is free of course. And as you know, a man gets what he pays for in life…