I’ve been getting a lot of pundit outlook pieces for 2023 in my inbox these past few weeks.
The onset of a new year is a time for making lists of predictions, surprises and black swan possibilities.
There are few sure things when it comes to the markets so I don’t put a lot of stock into predictions.
You could say the stock market will open at 9:30 am est and close at 4 pm est during regular market hours but the U.S. stock market was closed for about 6 months at the onset of World War I.
So even that’s not a given.
My only take on the pundit class and their forecasts is the consensus will likely be wrong. What most people think will happen in 2023 probably won’t happen.
Other than that who knows.
I’ve been thinking about the deluge of predictions from another angle — what are the things that probably won’t happen in 2023?
I say probably because there are no certainties involved when investing.
Anything can happen but let’s look at some stuff that probably won’t happen in 2023 based on history:
The stock market probably won’t give us “average” returns. Depending on the time frame you use the long run annualized return for U.S. stocks is something in the 8-10% range.
The strange thing about investing in stocks is any given year rarely gives you anything close to that range of returns.
In fact, going back to 1928 there has been one single year of returns that fell between 8% and 10% (1993 when the S&P 500 was up 9.97% in total on the year).
Most of the time the stock market is up big or down big on the year. From 1928-2022, 70% of all years have seen double-digit gains or losses (including 2022):
Most of those big moves have been to the upside with more than one-third of all calendar year returns ending with gains of 20% or more.
But even the down years are full of big losses. Almost half of all years that have ended in the red did so with losses of 10% or worse.
The history of the stock market is big gains and big losses with the occasional boring year thrown in for good measure.
If we use history as a guide, 2023 is more likely to see double-digit gains or losses than anything approaching the long-term averages.
A lot of people are probably going to be unhappy with the economy regardless of what happens. When interest rates are too low the narrative is savers are being punished because they can’t earn any yield on their cash.
When interest rates are too high, the American dream is dead because it’s too cumbersome to borrow money.
When inflation is too low, the narrative is wages are stagnating.
When inflation is too high, the narrative is rising wages are causing problems for price stability.
Unfortunately, there are always going to be winners and losers no matter the economic environment.
If we go into a recession in 2023, some people and businesses will be hurt more than others.
If the economy continues to grow, some people and businesses will benefit more than others.
The winners and losers can also change depending on the circumstances.
A new research paper from the Federal Reserve found the highest income earners saw the biggest gains coming out of the 2001 and 2008 recessions.
But coming out of the Covid recession of 2020, the lowest wage earners have experienced the largest gains in pay while the highest bracket by income has lagged.
Some group of people or businesses will always be unhappy no matter what happens.
Everything in your portfolio probably won’t “work” in 2023. If you own more than one asset class, security or investment strategy, you’re bound to be unhappy with something in your portfolio.
The old saying is diversification means always having to say you’re sorry.
It would be nice if stocks, bonds, cash, real estate and alternative investments all go nuts in the new year but chances are something is going to perform poorly even if 2023 is better for investors than 2022.
If you’re properly diversified, you shouldn’t expect everything in your portfolio to fire on all cylinders.
Diversification is only working in the long-term if some investments don’t “work” as well as other investments in the short-term.
Your favorite influencer probably won’t make you rich overnight. I hate to stereotype but your favorite guru on Instagram or TikTok with millions of followers likely doesn’t have the secret path to overnight riches for you in their 60 second video clip.
Building wealth is not easy nor should it be.
Elon Musk probably won’t buy another company. Twitter seems to be taking up a lot of his time. I guess this one would be void if Tesla decides to buy Twitter.
The Lions probably won’t make the playoffs. It’s been kind of fun this year to be in the mix but I’m being realistic here.
Tom Cruise probably won’t win an Oscar…but he should. Did you know Tom Cruise has never won an Oscar before? He’s been nominated in the past (for Born on the Fourth of July, Jerry Maguire and Magnolia) but never taken home the hardware.
Can we just give him best actor for the new Top Gun as a career achievement for being the best movie star in history?
I probably won’t drink my first cup of coffee. I have nothing against coffee (other than the smell and taste).
I’m actually a little jealous of the routine people have with their coffee in the morning.
It’s just not for me and I’ve made it this long.
You probably won’t pick the best-performing stock. The best-performing company in the U.S. stock market (Russell 3000 Index) in 2022 was Target Hospitality up nearly 320%.
Never heard of it.
The next best return from a company called Scorpio Tankers (also up more than 300%). The only other stock up 300% in 2022 was called Ardmore Shipping Company.
Obviously, someone owned these names this past year but it was probably a drop in the ocean in terms of all investors.
The good news is you don’t have the pick the best stocks each and every year to be a successful investor.
Michael and I discussed things that won’t happen and a lot more on this week’s Animal Spirits video: