Stock Market Forecast for the Next 5 Years
After 2022’s disappointing stock market performance, 2023’s performance is much better. At least it is for the S&P and NASDAQ indexes. The Dow Jones and Russell 2000 has skidded of late.
Investors venture into 6 month, 5 year, and 10 year research for guidance on what to buy now, but also to understand the opportunities and threats we’ll experience in those time periods. Smart investors explore each time period and delve into economic signals/factors along with identifying sectors and stock most likely to thrive.
Key Factors To Watch as Clues to Long Term Performance
The 5 year to 10 year period are more influenced by macroeconomic forces and swings. If you’ve never thought about macroeconomics, then it’s wise to do a crash course so you don’t allow tomorrow’s, this months, and 3 and 6 month views to cloud your judgement.
And you’ll be looking for quality stocks that might provide a combination of security, growth and dividends such as GOOG. Of course other stocks might provide better returns over the 2 to 3 year term. Oil and energy stocks fit that category. Take a good look at Canadian oil stocks too. The point is that at some point, some stocks will soar and giving you phenomenal profit. I could have purchase ATH-TO 3 years ago at ten cents and it’s now at $3.00. That’s a 30X growth. $100,000 would have translated to $3,000,000. A wise investor would have known for certain that the oil stocks would rebound. Live and learn.
I said previously that the US’s new competitiveness with China will support growth in the tech sector thus taking the NASDAQ up from its recent doldrums. It’s up 17%. Yet, at this point with the Dow Industrials so sluggish, that they represent a better buying opportunity.
Experts are Increasingly Positive on the Market Outlook
Retail investors know the 3 month, 6 month and 2023 forecasts are just a recording of volatility and temporary sentiment. Retail and institutional investors are looking forward through the 3 year time frame, because they might believe growth is slow until then. This flattening of the outlook allows everyone to project further ahead and keep their focus on long term growth. Getting rich quick seem unlikely, and picking individual stocks is a tough prospect.
Longforecast saw the S&P growing 15% by this summer and it looks like they hit it dead on. However, they see it falling to 4000 at year end 2023.
5 Year MacroEconomic Factors and Signals
5 Year US GDP Outlook
The first macroeconomic signal to look to is estimates of US GDP. While the current crisis with the US government is real, their is reason to be optimistic. GDP is still positive despite the draconian increase in interest rates. There is huge money in US savings accounts and it could be unleashed into the stock market as the US economy recovers.
US Unemployment and Jobs Report
Forecasts of Unemployment aren’t numerous because of the difficulty of forecasters to predict political decisions. The view of the next year is very negative, yet as interest rates fall, cash heavy Americans will spend again and there’s no reason to doubt this will continue for 5 years. Demand from Millennials and Gen Z’s will be high.
CPI and MPI Forecast
Retail Sales Forecast
Industrial Output Forecast
5 Year Study Protects your 401k or other Investments
Fund managers and institutional investors also see the 5 year and 10 year models as more informative. Of course they have some insightful forecasting tools including technical charts, GDP forecasts, commodity prices, demographic demand projections, and more data to make better predictions.
Of course, even with those expert forecasting tools/software and massive data, they aren’t too bold about venturing 5 to 10 year forecasts. Because too much of it tends to be political and organic.
2 Year forecast for S&P 500
To build an accurate 5 to 10 year forecast, retail investors can look at historical models but this period of extreme Fed spending and liquidity have muddled the accuracy of that view. And the government could increase the money supply again at any time.
The US debt crisis still looms over the markets, even thought investors ignore it. If interest rates were to grow, it could generate defaults around the world. And that threat may be what stops the FED from thinking it can control inflation on its own. The fact is, the shortages of supply need to be addressed, something the current regime doesn’t want to loosen up on.
In November 2024, the US will likely elect a new US president. This could launch a wave of optimism to power the 2024 to 2028 period.
Most projections of the economy over the 5 year term would see continued spending, more production of goods and technology within the US, increased immigration as America’s population ages, and US workers shun minimum wage jobs.
Cost for multinationals will likely rise and commodity prices will climb too, at least until 2026. Knoema projects oil prices and natural gas prices will rise strongly to 2030. Food, fertilizer, copper, steel, will also steadily increase in price.
The US dollar too is already strengthening as the fears ease over the FED rate hike.
Europe’s debt situation and the effects of the Russia embargo will ease over the 5 to 10 years, and green energy will ease demand for oil, which will help moderate the cost of oil. Estimates of the demise of fuel based energy has been exaggerated however. It will take a decade or more at least before electric vehicles are dominant in the first world, and likely 20 years before they are in the third world.
US Government Spending Likely Won’t Stop
The end of government spending means demand would drop significantly, and protectionism would reign. Any move to market protectionism means manufacturing would return to US shores, and investment in Asia would slow. More investment in US factories, jobs and education could help fuel a boom period.
With the ballooning US debt and deficit, along with Republican resistance to irresponsible spending, importing goods from China, Indonesia, or even Mexico might become unpopular.
But for the US, which has been “funding the world”, the outlook is be for more focus within the US.
It’s not a simple prediction for the 10 year outlook even for the biggest investment firms blessed with AI technology. Guessing political trends and events, weather outlooks, trade agreements, and technology developments is difficult. It’s likely that automation and AI will have a big impact on the economy.
We saw the end of a 14 year bull market, so what will happen after this one to two year balancing of the economy?
After $7 Trillion in spending, US consumers are still optimistic and have plenty of household wealth and secure jobs. Is inflation enough to destroy the 5 year economic outlook? Probably not. The US economy is very strong which is why the Fed and current US government are struggling to suppress it. Experts expect it to come flying back.
You can invest in good dividend stocks, growth stocks, or even bonds and you may ride this artificial recession out.
After the Recession, The US Economy Will Return
2023 may not be much fun for investors, after the losses of 2022. But consider these factors as a run from 2023 to 2028:
- interest rates will slowly reverse down to affordable levels, thus stimulating housing construction and home buying which is a key economic engine
- consumers will resume a normal lifestyle
- small to medium sized businesses will find growth after a terrible pandemic
- commodity prices will rise slowly but should be manageable
- resistance to open trade with China will increase — raising production within the US
- oil prices and energy costs will rise over next 5 years
- taxes will rise to pay for government spending
- pent up housing demand launches housing market boom
- millennials still driving big demand with huge Gen Z’s soon to follow
- housing stock increases allowing Americans to move more comfortably to a new home
- US economy more de-centralized away from big urban centers and costly California
- move away from low profit/high cost green energy in 2025 to practical sources
- wages won’t drop as much as Fed wants meaning inflation will continue above 2%
- Fed rate increases will end in 2023
The 3 month to 6 month outlooks may be troubled with a bottoming out in the next two quarters. Investors will get to hunt for bargains to buy the dip. and a rip your face off rally may just happen by late spring, after Fed ends it rate rises.
Right now, you’re looking to get back into stocks yet finding those equities that will survive the next 16 to 30 months isn’t an easy task. You could stick with the FAANG, or top 100 S&P stocks and you’ll likely survive in tact. This is the strategy for most investment firms, so they don’t really have any better grasp of the future of the stock market. Otherwise, they’d be picking some good horses to bet on.
What’s the Next 5 Years Going to be Like?
The chart from the conference board seems to show that the 2021 year of trillion dollar stimulus has spoiled markets and businesses who didn’t have to compete hard to win. 5 years from now in 2027, the question of US competitiveness will be answered.
As the chart below reveals, starting this year a pronounced drop in GDP, real disposable income, residential investment, will be countered by lower imports, falling inventories and rising government spending. But will the current government be in power after 2024? Will a new government lower taxes, favor business, and strengthen commitment to US Companies. That would change all projections.
Start Investing for the 5 to 10 Year Period?
Investigating the 5 year or 10 year outlook is a sure sign you’re a wise investor. After all, if you don’t know what’s ahead for US business, then all of your investing is basically gambling (i.e., Bitcoin, FTX). You have to know which stocks are long term investments and be certain about when you’ll need to dump some of the speculative stocks you have now.
Would you rely on an AI stock prediction service for your 5 year outlook? Of course not, because the driving factors are human and emotional which machines can’t understand as yet.
Just for context, here’s what’s happened in stocks the last 5 years:
My 5 year market forecast is for continued but modest growth beyond 2023, and I believe the US government will tackle the China problem, because they have to. The issue of competing with China and feeding the trade deficit will have to be dealt with. Ending that problem could result in an economic boom.
Some experts believe the 5 year outlook will be of lagging GDP, lower demand, and weak profitability. Schwab believes U.S. large-cap stocks will show 6.4% returns annually over the next 10 years, vs 7.5% for international large-cap stocks. They point out a projection from economists of 2.3% GDP growth per year, on average, over the next 10 years, compared to the historic average of 3.1%.
The Bureau of Economic Analysis forecast rising real GDP until about 2027, when it begins to tail off. This suggests the 10 year period is looking dour. A lot depends on US commitment to technology, American productivity, reshoring manufacturing, lowering taxes, and leveraging cheap carbon energy.
CBO offer’s their projections for the 5 to 10 year period ahead. Their projections are for lower unemployment, lower interest rates and higher corporate profit after 2025.
US Trade Deficit Hit $80 Billion per Month
The balance of trade deficit is improving since the spring of 2022, however it has grown $10 billion from last year. A growing issue with import costs means the US is losing money which means lower domestic spending, higher unemployment, and troublesome long term national debt to finance.
As I mentioned two year ago the stock market predictions for 2022/2023 some big corrections would happen. Perhaps in October, we might see the first. The big event comes in December of 2022 with the mid term senate and house elections.
The US is battling China, because China is positioning to take all the global trade marbles for themselves and leave the US and Europe out in the cold. China is suppressing its economy right now due to the cost of materials including coal, lithium, copper, steel, oil and natural gas. As its economy resumes in 2023, demand will grow and inflation will jump.
This will cause the current President and the Fed to overreact and raise interest rates. This is why the next 6 months will provide outstanding buying opportunities for those with 5 to 10 year investment horizons.
More Moderate and Conservative Values Come with Slower Growth
We’ve seen the current US administration juggling endless tactics including free cash giveaways, stimulus trillions, and social re-engineering that are too far ahead of themselves (green energy, crushing US energy production, raising taxes on the wealthy). Some of these initiatives may help (supporting the burgeoning poor, building new infrastructure, encouraging renewable technology) but where is help for housing which is actually supporting the economy?)
Americans are not liking either major political party so a political balancing act should reign for some time. With each other cancelling the other party’s extreme efforts, it can create a period of truce and calm.
We should see some good periods for the Russell 2000 and S&P small caps, but it’s a tough life for small business. The government simply isn’t intelligent enough to know how to grow small business without alienating big business and causing stock equities to suffer. Between a rock and a hard place. Yet small business drives employment.
Check out Tesla, Bitcoin, 5G, Google, Apple as they likely will continue to perform well. Some believe oil stocks will do well for another 5 years. And if the stock market does crash, it will likely return by 2025 and even out nicely by 2027.
Enjoy the rocky road ahead. See more on the stock market forecast, stock market today, and what drives the S&P, Dow Jones, NASDAQ and Russell indexes. The broader you’re knowledge and the more diverse your perspective, the more likely you are to avoid picking stocks you should sell, and find the best stocks to buy for the next 5 years.
More Market Forecasts
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