By Katie Gomez

2022 has been a rollercoaster ride for the stock market, and with the year coming to a close, traders and investors are left wondering what the new year will have in store. None of us enjoy feeling in the dark, and when the present looks grim, our instincts are to search for a glimmer of hope. The following article will briefly review my stock market prediction for the coming year. 

Bear or Bull?

We’ve spent over 270 days in a bearish market so far this year. Traders have assumed it will become the new normal. Since a bearish market on average lasts around 289 days, the early January predictions from this year believed that after August, the market would slowly pull back to bullish. But, the unexpected increase in inflation (due to the war in Ukraine) saw the bear market deepen further in September and October.  

That said, Bank of America’s most recent predictions say stocks may set up for a bull run in 2023, but we can expect inflation to remain if the Fed does not start to lower rates. Inflation will continue to rise until a recession forces their hand to take action and lower rates steadily (Bank, 2022). The Federal Reserve is fighting the highest inflation numbers we have seen in decades, and the only way they have thought to deal is by raising interest rates. Therefore, if things continue the way they are now, the most likely outcome in the coming months will be a recession. 

Stocks to Look Out For 

The NASDAQ-100 index is one of the more significant stocks that has taken a massive hit, dropping nearly 34% in value in October, and is now on track for the worst annual loss since the global financial crisis. Amazon’s usual steady pace has massively slowed down in 2022, but it looks like it is on the rebound going into next year. Alphabet has also shown signs of a struggle this year, given the decrease in advertising revenue. The S&P 500 was another shock plummeting for the U.S. market, working as a proxy for various savings accounts (college, health/emergency, and retirement funds). In late September the S&P fell to its lowest level in 18 months, declining roughly 7.9% (Suleymonova, 2022).

Although it was a rough year for Amazon stock, traders should take advantage before its imminent bounce-back. Amazon stock fell nearly 46% from all-time highs. So, it might be the right opportunity to go in on it as we enter the new year. Since Alphabet’s stock value has also fallen, it also might be worth further research. Today, Alphabet’s stock is trading at a 36% discount compared to its all-time high, so it may be advantageous to a trader looking for a dip to buy ahead of 2023 (Pizio, 2022). 

Will 2023 be a good year for the market?

In light of some significant stocks taking dips in 2022, the market may be set up for success next year. We can also see a potentially good start to the year because of the November polls, as the stock performance after midterm elections has nearly doubled in other years.

Additionally, 2023 will serve as the third presidential term for Biden; when looking at previous data, the third year of a presidential term has historically been the strongest for markets by a landslide.  

Image:

https://www.hartfordfunds.com/practice-management/client-conversations/investing-for-growth/2023-could-be-a-good-year-for-the-stock-market.html

Game plans & Strategies 

Even though the word recession is not one most people would like to hear, it can mean good news for traders in 2023. A recession is a real possibility moving into the new year, so traders, investors, and brokers must preemptively start devising their game plans. The silver lining to this recession is the opportunity now to buy stocks and high-yield closed-end funds for cheap. A good analogy for recessions is hurricanes; when the arrival is unprecedented, people panic and can potentially lose everything. However, when they are predicted and targeted, we have time to prepare and act accordingly to save our assets; the latter is the situation we will be in come the next recession. 

One might think to press pause on trading until the recession subsides, but in this case, acting sooner is better. In October, analysts reported an 8.4% yielding CEF (twice discounted), peaking above the average 10-year yield, likely indicating a recession within a year. This information would hardly surprise those invested in the stock markets, as they have been pricing in a recession during this bear market year. Since it is such a rare occasion that stocks would continue to fall for another year, we now have a rare buying opportunity (BNK Invest, 2022).

This recession will not compare to 2008 because the market was not anticipating it then and crashed. On the other hand, this next one will be the most anticipated and priced recession in recent history (over 50 years). Therefore, we will not have to wait it out before we strike because the market has prepared for what is to come. 

​​References

Suleymanova, R. (2022, September 30). US bear market deepens: What that means for you. Financial Markets News | Al Jazeera. Retrieved November 16, 2022, from https://www.aljazeera.com/economy/2022/9/30/bear-market-what-it-means-and-how-long-the-us-may-be-in-one

 Investing for Growth. (2022, August 9). 2023 could be a good year for the stock market. Hartford Funds. Retrieved November 16, 2022, from https://www.hartfordfunds.com/practice-management/client-conversations/investing-for-growth/2023-could-be-a-good-year-for-the-stock-market.html

Invest, B. N. K. (Oct 2022). Here is our “recession 2023” game plan (for cheap 8.4% dividends). Nasdaq. Retrieved November 16, 2022, from https://www.nasdaq.com/articles/heres-our-recession-2023-game-plan-for-cheap-8.4-dividends

Pizio, A. D. (2022, November 16). Prediction: These will be 2 of the strongest stocks in 2023. The Motley Fool. Retrieved November 16, 2022, from https://www.fool.com/investing/2022/11/16/prediction-these-will-be-2-strongest-stocks-2023/