Stock Market Forecast for the Next 6 Months

While Q4 of 2022 has been kind to investors, the next 3 months and 6 months to one year forecast might not be.

With employment strong, inflation running hot, interest rates and mortgage rates rising, oil demand/prices likely to increase and food production questionable, it might be a rough road ahead. Forecasts suggest about 3500 for the S&P, however others believe it could settle near 3000 if a series of unfortunate events should occur.

If the US government believes raising interest rates is the only way to ease inflation, it will likely have to go beyond 6% to cool it. That would likely cause a housing market correction of perhaps 20% in prices.  A return to a normalized economy will ensure upward demand and price growth, so the Fed won’t be able to stop.

Goldman Sach’s Outlook 2023

Goldman Sach’s David Kostin reported their outlook for 2023 is for less pain but less gain. They believe zero earnings growth translates to zero stock price growth. They predict 2023 S&P 500 earnings per share will stay at $224 and the index will finish at 4,000, 12 months from now. Goldman’s three-month target for the S&P is 3,600. They are suggesting a soft landing for the economy.

“Our strategists expect the benchmark to fall about 9% in the next three months before rebounding after the Federal Reserve’s tightening cycle ends in May…Our strategists favor stocks that aren’t as sensitive to changes in interest rates, like companies in healthcare, consumer staples and energy.” from news release on Goldmansachs website.

With the lower price of energy, vast amounts of US consumer cash ready to spend, and strong corporate balance sheets, it’s not surprising October, November and December will post strong results.  The forecast for January, February and March has to be for consumer restraint and concern. That’s the 3 month view.

What’s unsettled is how the energy market will play, how much further rate hikes can go, and when China’s lockdowns will finally end.  When Europe is through this winter, it can breathe a sigh of relief, yet it will likely be deep into a recession within 6 months.

This 6 month outlook is a pivotal one for investors, providing the context for longer term, 5 year to 10 year investment horizons. Today, this week to 3 months can be misleading but six months gives us a better benchmark. The current market rally in October provides further context for smart investors who see predictions as vital information.

The weight is definitely on the side of a market slide, and there are reports of slowing spending (consumers now have one tenth of the savings they had in 2021).  However, a lot is going to happen in Q4 2022 and Q1 2023. And I’m not referring to earnings reports, more Fed hikes, face ripping rallies for a day, or tragic events in the Ukraine or UK.

6 months from now brings us close to summer 2023 where optimism could take flight again after a slowing of the economy. There are economists who believe that creating massive disappointment and a crash is the way to go. Yet would a sudden shock to consumers really resolve the issues the US faces?  Would it end inflation, regulations, supply shortages, bankruptcies, and wars?

This six-month term is one of too high and even rising rates, and that’s not good for inflation, stocks earnings, or financial health for Americans. If the Repubs win the Senate and House, they could put a stopper on the monetary and fiscal madness. Or they could mess it up further because stopping Biden madness doesn’t necessarily fix the problem.

The next 3 months could be the dark slide into despair to February. This is the month that could bring everything out into the open.

Inflation reports will continue to bring bad news.  They’re too high, too ingrained because of previous stimulus and regulations that restrict supply.  And the Fed can only reduce them by raising interest rates and shrinking the money supply. Looks like that will happen. Use caution in investing during these inexplicable bear market “face ripping” rallies. The fact no one knows what’s causing them should be sobering to stock traders.

Freed up supply, renewed investment and increasing sales would solve every company’s problems.  It would dramatically affect the investment outlook. If prices dropped, Americans would spend.

This week we learned employment is strong. Wages too are excellent and there are plenty of open positions. However, the supply of oil (not being supplied by US or Canada) is being cut which pushed oil prices up to $92 a barrel today. This will force the Fed to raise interest rates which injure the housing market severely, and the S&P, NASDAQ, and Dow Jones are already sliding.

Investors know the US Fed is limited in its power and the real solution is to power up business, lower taxes, increase supply and eliminate excessive regulation. Americans know the Dems won’t do that, which means the elections will decide who wins.

With the US Fed determined to increase the key lending rate to over 4% the fall outlook is souring. The housing market will be hit very hard, especially if mortgages push toward 10%. That is a relatively huge increase from their deep lows for many years. And housing sales stimulate so many big ticket purchases, and poor home sales normally predict tough times ahead.

Despite deliriously optimistic consumers, reports suggest companies are pulling back hard right now, likely because positive signals are disappearing. There’s a shock wave of pessimism in investors. For investors like yourself the next 3 months should offer a superb buy the dip opportunity and ease up on long term worries.

Certainly, for long term investors (speculators are giving up) there is big opportunity coming. This next 6 months should deliver cheap stocks to buy (on the current recessionary trajectory). Can you or should you time the bottom? Experts advise not trying. The technical experts might help identify it and you’ll have a big window appearing in early winter.

The warning from the oil markets is that the oil price is about to jump to $125 a barrel, based on Europe’s price caps and blockade of 2023 Russian oil sales. Seems credible right now. If China’s economy begins rolling again (it’s not, in fact Xi wouldn’t even release their GDP report because it’s so awful), demand increases could have an effect. Xi could be holding the country back to avoid rising wages, rising currency valuation, and keep their inflation low.  But that means less imports of goods into the US.  US production would have to pick up the slack (i.e. microchip production).

I don’t think the experts were expecting a China meltdown.  Why China would suppress their economy artificially right now is kind of a mystery.  They must have a strategic tactic, or they see the US is vulnerable.  Russia will shut off all natural gas to Europe which in turn should increase oil demand and make Nat Gas very expensive for the next year at least. It’s risky, but you might want to revisit the best oil stocks post.

Rising energy costs will hit American consumers in the pocketbook, which will add to spending pullbacks. It’s wise to look into hedging strategies and recession proof investing.

What to Watch for:

  • For how long the Fed could continue raising rates
  • oil and nat gas prices — will they rocket?
  • Russian oil stoppage hits Europe and China hard
  • falling employment rising labor participation rate drives wages down
  • retail sales begins to plummet, poor Xmas season?
  • will the Repubs win the mid terms?
  • shaky investor confidence creates a “big event” this fall
  • Fed Ex president predicts global recession based on weak activity
  • Dow Dropped 11% from Jan 1 to March 8th in 2022 (2 months)

Best Stocks to Buy in 2023

With Covid gradually ending, investors may have lost sight of the fact that the economy would then expand.  It should be booming as full business activities are resumed, yet with rate hikes and dwindling stimulus, it sagged in 2022.

The Dow JonesNASDAQ and S&P have continued an overall downtrend interrupted by these strange, sudden rallies which I guess act as a break on out of control pessimism.

The strong volatility of the last 6 months shows investors feel a lot of uncertainty.  With the war in Europe and communist pressures on Taiwan, along with Fed spending reduction and interest rate rises, some investment advisors are telling people to get out of the stock markets. Well, it’s too late. Now they’re saying just hold.

These are your best performing stocks during the last month and you may want to review stocks that perform well during downturns if you’re looking for ROI in the next 6 month period.

Barchart’s list of top performers is highlighted by strong alphas of Teekay Tankers, International Seaways, and Aardmore Shipping. And the energy stocks have come back as well even with this week’s drop in oil prices. As the next three to six months pass, we’ll likely see the supply issues bring oil stocks back strong.

Energy stocks moving averages.
Energy stocks moving averages. Screenshot courtesy of Barchart
Top Performing Stocks of Late 4 weeks to 52 weeks
Screenshot courtesy of Barchart.com
S&P Forecast Next 6 months.
S&P Forecast Next 6 months. Screenshot courtesy of Forecasts.org

Supply Shortage Will Still Play a Role

Steel, copper, lithium, aluminum, palladium, nickel, lumber and computer chips might be in short supply. That could push you over to the Dow Jones.  And if interest rates do rise and Fed spending tapers strongly, the NASDAQ likely will get hit hard — if consumer spending drops, investment drops, and as the big tech monopolies enjoy owning the markets.

Trading Economics US GDP Forecast

Trading economics offers their forecast for various GDP factors. Their 6 month outlook is somewhat subdued with more optimism for 3rd and 4th quarter growth.  If materials and supply chain issues are prevalent, then it might be some time before US companies can get rolling in production. It could take half a year for the economy to adjust to higher borrowing costs, higher prices, and lower Fed spending.

GDP rates for last two years.
GDP rates for last two years. Screenshot courtesy of Tradingeconomics.com
US GDP Growth Forecast to 2028.
US GDP Growth Forecast to 2028. Screenshot courtesy of Trading Economics.

It’s quite a shock and more is coming. Bitcoin NASDAQc and S&P tech stocks could take a beating.  Some stimulus might be needed to get things rolling in March 2023.

The Economy Will Grow very Slightly

The Economic and Strategic Research (ESR) Group sees GDP contracting 0.7% (annual) in the 4th quarter.  They expect headline GDP growth to remain negative through Q3, 2023 as the US economy enters a modest recession.

Stats courtesy of BEA 2022 2020* 2021 2022 2023
IV
Q
I
Q
II
Q
III
Q
ANNUAL ANNUAL ANNUAL ANNUAL
Real GDP 6 2.2 3.1 2.9 -3.4 5.6 3.5 2.9
Real Disposable Income -3 0.5 1 1.5 6.2 2.3 -2.7 2.2
Real Consumer Spending 4.7 2.6 2.9 2.4 -3.8 8 3.4 2.6
Residential Investment 0.5 2 3 2.5 6.8 9.1 -0.2 1.5
Nonresidential investment 3.3 5 5.2 4.8 -5.3 7.4 4.5 4.4
Inventory Change (bln chn ’12$) 50 55 60 65 -42 -68 61 40
Total Gov’t Spending 2 2.5 3 3.8 2.5 0.8 2.3 4.2
Exports 13.2 2 6.1 5.1 -13.6 4 4.7 4.4
Imports 12.1 6 6 5 -8.9 13.6 6.8 4.1
Unemployment Rate (%) 4.2 3.8 3.6 3.5 8.1 5.4 3.1 3.3
PCE Inflation (%Y/Y) 5.5 4.7 3.7 3.1 1.2 3.9 3.6 3
Core PCE Inflation (%Y/Y) 4.5 4.4 3.7 3.2 1.4 3.3 3.6 3

 

“Consumers have plenty of income and wealth ammunition to support consumer spending, while business inventories remain lean and restocking efforts are poised to support business investment and overall GDP growth substantially in the second half of the year,” — Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina – from Reuters report.

In general, Americans were awash in cash with low debt, and wages are good and there are jobs galore unfilled. Of course, inflation seems to be eating into that growth, but we’ll see if inflation is a persistent threat to corporate profits. Most corporations simply pass through inflation and taxes to customers. Can they continue to do that, or will we see a final reckoning on jobs, wages, and hiring by March?  The Fed must keep tightening to reduce demand.

Once supply chains open again, materials/goods might be less costly thus production can rev up.

Some of the slowdown in goods spending reflects shortages of motor vehicles and other appliances, whose production has been hampered by tight supplies of semiconductors across the globe — from Reuters report.

Consumer sentiment might be low right now, but that temporary mood will dissipate 6 months from now in the early summer.  Americans will spend more on homes, iPhones, big screen TVS, vacations and consumer goods. And US manufacturers and software developers will see more revenue and sales.  It will be risk on sentiment in 2022.

The Dow Jones, S&P 500 and NASDAQ have enjoyed steep growth curves year to date, although not like 2020 (growth is usually about 10% after a peak year) and more growth is certain for the next 6 months.

Whether tomorrow, next week, next month and into next year the stock market and housing market are poised to move ahead. Yes, new home construction is down and inflation is up, but the market will produce what consumers crave.  Governments will make it harder with their crazy agendas, but what consumers want, they will get.

Some investors zero in on todays forecast or on next week’s outlook which is fine to get a gauge on what’s moving the stock market and housing market.

Smart investors, business owners and home buyers all focus on the 6 month forecast and 5 year outlook as a more reliable guide. In a highly indebted economy based on credit (and big savings too), the Fed and its interest rate intentions are really important. The Fed says it will not raise rates in the next 6 months, so this bodes well for the last half of 2021 and the 2022 forecast.

As a reminder, the Christmas buying season is only about 3 to 4 months away, and forecasts are predicting strong Xmas sales. It’s American savings that are the key to the upcoming sales boom.  As Covid is defeated, the opening to retail sales, travel, leisure and hospitality will fund a return to normal, and beyond.

Key 6 Month forecast factors:

  • Powell, FOMC and the Fed: pushing short term inflation to support 2% inflation long term
  • Fed is intending to taper its spending spree
  • Inflation is considered good for growth, but short term inflation even if it hits 5% to 10% won’t cripple the long term growth trend
  • GDP: strong first quarter growth at 6.4%, and Atlanta Fed forecasts a 9.3% rate for 2nd quarter
  • Housing Market outlook: construction beginning to rise while prices begin to moderate
  • 5 year outlook for the housing market positive given savings rate, demographics, and immigration forecasts
  • post pandemic recovery pace easing but is still well above 2019 levels
  • Wage Growth : employment rate steadied with slight rise in wages during April (s increased by 21 cents to $30.17)
    Workers are reluctant to return to work for a number of reasons, but those reasons will diminish in the coming 6 months with vaccinations and fed payment wage subsidy program ending
  • Biden’s stimulus package likely to provide $3 Trillion boost to the economy and could be sustained spending for many years.
  • Corporate earnings reports positive heading into summer recovery and business reopening
  • Consumer spending rose .5% in April
  • travel spending surged in May
  • shortages in products and materials likely to spur more investment

The ISM’s index of national factory activity increased to a reading of 61.2 last month from 60.7 in April. A reading above 50 indicates expansion in manufacturing, which accounts for 11.9% of the U.S. economy. Economists polled by Reuters had forecast the index rising to 60.9 in May. — Reuters’s report.

The 6 month timeframe for the DOW, S&P, NASDAQ and Russell Indexes. is a good one for what’s expected to be a hot period, the last 6 months leading to what might be a record holiday season.

Over the June to December forecast period, we’re going to see more stock market index records. The Dow, S&P, NASDAQ and Russell are poised to reach their respective records soon.  Sure there’s debt based crash talk and volatility test investors convictions.  Yet, the momentum is clear and any inflation that occurs might encourage more investment (bond market hates inflation).

Take a good look at the fastest gaining small, mid and large cap stocks with an eye on safety and hedging.  Experts believe the market will cool, but they’ve been saying that for years, so you have to take their predictions and projections with a grain of salt. See more on the best tech stocks, 5G stocks, and oil stocks.

Quick Links: Stock Market Tomorrow, next Week, Dow Jones Forecast , NASDAQ Forecast, Stock Market Correction, Don’t Buy These Stocks, Best Stocks to Buy, and Stock Trading.

Best Summer Stocks to Buy?


Investor Place offers up their best 6 month picks:

  • Wayfair (NYSE:W) (retail furniture boom)
  • McDonald’s (NYSE:MCD) (consumer spending, end of covid)
  • Carvana (NYSE:CVNA)  (used cars)
  • Carnival Cruise Lines (NYSE:CCL) (travel and tourism prices rising fast)
  • Vail Resorts (NYSE:MTN) (hotels opening up, recreation coming back)
  • Visa (NYSE:V) (consumer spending on credit rising)
  • Nvidia (NASDAQ:NVDA) (chips for phones, gameplaying, and cars)

The Market is Complicated but Overpowered by Growth

Few indicators suggest a stock market crash or a housing crash and financial collapse is imminent. The crash factors are complex. Complexity with extreme price growth means the threat will surprise everyone.  Credit and the stimulus will take care of the next few years.  Inflation will happen, but economists don’t believe it will be damaging to growth or profits through 2022.

Americans are worried about a housing market collapse, but with such low housing supply, it’s hard to see anything dropping home prices. Stimulus will grow construction even in a grossly over-regulated housing market. Home prices are surging out of hand this spring and summer. Bidding wars will abound and many homeowners will finally decide to sell to catch some of the windfall. It won’t be a problem after the next six months.

CBO Report: Positive for 5 Years

“Specifically, real (inflation-adjusted) gross domestic product (GDP) is projected to return to its prepandemic level in mid-2021 and to surpass its potential (that is, its maximum sustainable) level in early 2025. In CBO’s projections, the unemployment rate gradually declines through 2026, and the number of people employed returns to its prepandemic level in 2024.” —  CBO Overview of the Economic Outlook: 2021 to 2031.

6 Month GDP trend.
6 Month GDP trend. Chart courtesy of Ycharts.com
CBO Economic Projections 10 year outlook.
Economic forecast next few years. Screenshot courtesy of CBO report.

One expert says the euphoria is gone and it’s hard to get investors excited. Well, that just isn’t true.  People are still depressed through the pandemic, and are only re-emerging in the spring of 2021. There will be plenty of crazy euphoria by late summer when Covid 19 infections dwindle.

Many of the bears are looking at issues that might not kill the economy for a few years. The Biden stimulus money will help bridge all problems in the next 6 months. One expert believes the stimulus money will actually reach the capital markets this time, where Trump’s stimulus money did not.

I’ll stick by most my early 2021 forecast that by July/August, the US economy will be roaring and it will take the stock market and housing market with it.

Clouding the 3 month and 6 month outlook however, is the aforementioned housing market where a tsunami of evictions and continuing plague of rent defaults threatens.  There is a level of volatility, uncertainty and a departure from old statistical trends, that makes stock market outlooks seem sketchy.

Yet if you’re a stock market investor, potential stock investor, home buyer, or employer, you need to be keying in on the core of economic paths (cyclical stocks). See the full comprehensive stock market forecast.

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