It may seem like 2022 has only just begun, but the reality is that it has been a long and eventful year and will soon come to an end. Just to put into perspective how long it’s been since last New Year’s Day, in early 2022 the stock market was still hitting all-time highs, mortgage rates were just over 3% and most pundits thought inflation was “temporary.” .”
Every year I sit down and make some bold stock market predictions, and I’ve been doing pretty well lately. While no one has a crystal ball (especially me), here’s a recap of my bold predictions for 2022 and five things I think have a high probability of happening in 2023.
Hand on heart: How did I do in 2022?
I believe in holding myself accountable for predictions, regardless of how they played out. So here’s how my five bold predictions for 2022 turned out. For the full versions, you can read last year’s article, but here are the quick versions:
- Value stocks will outperform growth. From mid-December 2022 the Vanguard Value ETF (VTV -1.02%) has surpassed that Vanguard Growth ETF (VUG -1.36%) by 27 percentage points, so it’s fair to call this an accurate prediction.
- The Fed will hike rates faster than expected. Last December, the latest Fed forecasts called for only one rate hike in 2022. Rates have risen 375 basis points from 2022 to November and are likely to be back up by the time you read this, so this turned out to be a good prediction.
- Real estate prices will again increase in double digits. Corresponding Zilov (z -0.41%) (ZG -1.02%)As of October 31, home prices were up 13.5% year over year. The year isn’t quite over yet, but that sounds like a win.
- SPACs will make a comeback. Well, I can’t win them all. As of this writing, the SPAC market is essentially dead.
- Crypto will have a tough year. Until December 12th Bitcoin (BTC -1.88%) and ether (ETH -2.73%) are down 64% and 66% for the year, respectively.
While we’re not quite at the end of the year at the time of this writing, it’s safe to say that four of the five were correct. I’m happy with these results as some of them (especially the crypto call) were considered very daring at the time.
5 bold predictions for 2023
Now let’s move on to the new ones. In general, they are more optimistic than last year’s forecasts.
1. The Fed will be successful in keeping inflation in check
Inflation has been running hot since mid-2021, but it seems we’re finally starting to bend a curve. And I bounce back and predict that the inflation rate will fall dramatically in the first half of 2023. Inflation has actually been pretty cool month-on-month, and we’re seeing sharp declines in housing and energy prices, two of the most important components of the consumer price index. Sure it would have taken over 400 basis points of rate hikes and we could certainly see a 2023 recession as a result, but I think we’ll have that mission accomplished moment sooner than many expect.
2. We will see the Federal Funds Rate fall
From mid-December 2022, the futures markets are pricing in a policy rate that will be 25 basis points higher by the end of 2023. But I expect we’ll see a lot of weakness as the Fed starts to get inflation under control in the economy and the Fed starts cutting rates faster than the market is expecting.
3. The stock market will have a strong 2023
This goes along with the first two predictions. Remember that the stock market is forward looking. It’s had a terrible 2022, not necessarily because of what’s happening in 2022, but because it anticipates a recession, prolonged high interest rates, and inflation. If the Fed can get inflation under control and start cutting rates soon after, the stock market could have a great 2023.
4. Crypto will continue to be weak
It’s taken longer than most other speculative investments, but cryptocurrencies seem to have fallen out of favor with investors over the past few months. And the FTX collapse certainly didn’t help boost public confidence. I could imagine that 2023 would be another tough year for the leading cryptocurrencies.
5. Mortgage rates will be below 5% by the end of 2023
Mortgage rates are more than double where they were at the start of 2022, but it’s important for investors to realize that they aren’t locked into any particular reference rate. There are some big catalysts that could lead to much lower mortgage rates by this time next year, such as a recession, a general lack of credit demand and the possibility of a slowdown in inflation.
These are meant to be bold predictions
Keep in mind that these are not intended to be extremely likely predictions. The forecasts for mortgage rates and interest rate cuts are particularly against the grain. But I think all five of those things have a bigger chance in 2023 than most investors realize.
Matthew Frankel, CFP® has positions in the Zillow Group. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Vanguard Index Funds-Vanguard Growth ETF, Vanguard Index Funds-Vanguard Value ETF, and Zillow Group. The Motley Fool has a disclosure policy.
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