3 Month Stock Market Outlook
The last quarter of 2022 will likely go down as a little of a Santa Claus rally, something not really expected by many, though touted by a few.
As the chart below shows, the Dow Jones rose 18%, the S&P was up 12.8%, the NASDAQ rose 8.9% and the Russell 2000 rose almost 13% during November. It was a nice surprise and likely a nice opportunity to sell off stocks that may drop in the next 3 to 6 months.
In fact, Morgan Stanley’s Mike Wilson is predicting the stock markets will plunge by double digits (24%) in the first few months of 2023. He forecasts the S&P 500 will reach 3,900 by end of next year, and low corporate earnings will cause it. He doesn’t believe the bear market is over and early 2023 will likely be volatile too. That will make it confusing for most retail investors. He advises to wait for the January February earnings reports.
This warns us that many investors/experts might be overlooking how depressing the higher rates and lack of support for the US economy will be. And the Fed is hoping to raise unemployment significantly as a way to bludgeon the economy to submission. If they have to step it up, they might overshoot and cause lasting damage.
Goldmand Sach’s chief U.S. equity strategist David Kostin, said GS believes the S&P 500 will fall about 10% to 3600 over the next three months as interest rates rise.
Forecast for December
The forecast for December should be fine as consumers indulge in some Xmas shopping. Black Friday and Cyber Monday showed strong sales revenue. Friday’s jobs report was strong, even though some big corporations are laying off staff. After Xmas and New Years Day, we should see significant slowing in spending. The Dec 14th Fed rate announcement is believed to be 50 basis points which will still chill investors.
What to Look for in the Next 3 Month Period?
- the Fed will keep raising the bank rate, 50 basis points in December and January
- China will likely not open its economy till at least 3 months
- corporate earnings may not be as bright
- energy prices will stay low until next summer
- lower trading volume and people taking vacations
- US dollar may stay low
Investors Waiting on the 3rd Quarter Earnings Reports
Consider that corporate earnings are not usually positive in the fall and the drop in US energy demand shows the economy is sliding. That demand may pick up pace in the next 100 days, however the next corporate earnings reports could send the S&P below the 3500 level.
The latest GDP, employment, job claims, and inflation numbers have sent the market sliding. The pessimism doesn’t last long however as cash-rich investors are itching to spend their money. Investors are awaiting the next Fed rate hike announcement and the thought is that it’s looking like at least 75 basis point rise.
Each rate hike hits investor’s confidence in the future hard. However, on the positive side, the next 6 month dip should give you plenty of opportunity to buy your favorite tech stock really cheap. September’s slide is beginning and there is little to suggest a rise will happen.
During August, investors thought the Bear market was done.
Heading to the New Low This Fall?
The Dow and the S&P have sunk to new 2022 lows, and the Dow is at its lowest in two years.
Forecasters are of the belief that the markets haven’t hit bottom. Wages are very high, and after the quick agreement with railroad worker union, few believe wages are going down easily. If inflation is to be reduced or contained, wages must come down, demand must be snuffed out, and unemployment must go up.
This 3-month period might be when the Fed really hits the economy hard to sink it. Inflation at 8.3% shows the hull of this ship is really thick. The Fed will need lots of torpedos. Investor and consumer confidence will flag, and by winter, some will be throwing in the towel.
A few experts believe a severe recession is ahead, yet most don’t believe the fundamentals are present for a strong recession. Since employment, wealth/savings, and home equity are strong, and government is spending more stimulus funds, and Covid spending is still flowing, it’s difficult to see a deep recession. But it could be extended as the Fed sticks to rising interest rates, the only tool they believe they have.
The Fed balance sheet reduction is about to begin in September by selling about $100 billion in treasuries and bonds each month. The market’s probably haven’t factored that in. So the selling of mortgage based bonds (flooding the market) will be interesting in October, November and December, means all asset prices could plunge.
A Crash/Deep Recession is Unlikely
Some talk about a housing crash and a stock market crash, but with so much money and consumer demand present, investors and buyers may buy these assets as they become cheaper — especially if they believe the one year, 3 year and 5 year outlook is okay. That means prices won’t go down. Wages are strong right now and the economy looks good, some even believe it could be a full employment recession, which doesn’t make sense.
The Republicans have won the House and they may be able to influence the Fed to abandon its obsession, and move the Dem’s focus instead on deregulation, lower taxes, increased energy supply. These would help dampen inflation and bolster the economy.
Here we’re investigating the importance of the 3 month to 6 month forecast period. And this period will help us understand where the markets will be in the next 5 years. Longforecast believes we’re in a sour period, and so far they’re right. They believe markets will soar in 2023. They see the Dow, S&P and NASDAQ all soaring by mid 2023.
Take a closer look at the top performing stocks in the last 3 months. Pharmas and biomedical companies performed well, and a few oil-related firms and shipping firms were in the top twenty.
The Forecast for 2023
Trading Economics forecast sees all markets about 3% per quarter throughout 2023.
The big 2023 event ahead is all about reality — that time when Americans come back to earth and realize the idea of $3.5 trillion spending didn’t solve the country’s fundamental problem about making things in America and not importing what it can’t afford. That’s when everyone pulls back and we’ll see some severe drops in stock prices and in home prices too.
Looking at the Russell Index and Small Caps
Small caps aren’t even on the radar as investors look to large stocks on the S&P and Dow Jones indexes. However, as this Yahoo Finance chart reveals, the real value of the stocks is showing through and some caps on the Russell may be worth a look.
Could we see a stock market crash sometime this summer? In many ways, the economy is a house of cards so concerns of corrections and crashes aren’t ludicrous. Few people foresaw any of the recent stock market crashes. Some were calling for a dramatic fall because they are way over-priced based on real earnings.
We’ve had a few volatile correction periods, but as we get closer to full Corona Virus vaccine distribution, you have to think the upward momentum will really pick up by 3 months from now when investors really believe the end of the pandemic is in site.
Record New Highs Called
The stock market for the next 3 months should rise continuously, to new highs. It looks like fundamentals are beginning to drive stock prices higher. Of course, next week’s earnings reports will give a clearer picture. Goldman Sachs earlier predicted an 18% drop in the markets in the next 6 months, but revised it after the S&P surged. Live and learn.
The markets have excelled during the pandemic, not as a response to billionaire wealth, but rather to the hope of the new United States. The Dow, S&P and NASDAQ have grown 15% over the last 3 months. Stock market experts expect stocks prices to plummet but they’ve forecasted this before.
Next 6 Months
The stock markets will benefit from the recovery in the next 6 months, and are already surging. November is a good month and this one will be too. Globally, issues of supply shortages will raise the value of commodities. Oil and natural gas prices are rocketing.
But now that Americans are returning to work and seeing clearly why a pro-American agenda is correct, we’re betting that US companies are going to soar.
The key factors in the next 3 months are:
- flat oil and commodity prices
- quickly rising Fed interest rate changes the outlook entirely on the future
- oil and gas cuts for Europe creates severe recessions and product shortages — a strong recession
- slow growth in China depresses investment in equities
- work at home still a thing as employers look for best talent
- employment rates begin to fall and wages start to turn downward
- wages and inflation put pressure on earnings performance
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