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The 2023 Stock Market Forecast

Stock prices ended September down 9.3% which was the worst month since March 2020.

The final day, September 30th, saw a 500-point tumble for the Dow, and the NASDAQ declined 1.5% as did the S&P 500.

September and October aren’t typically good months for the stock markets. And within a climate of persistent inflation and combatively higher interest rates, the surest forecast of the stock markets is a fall.

Mid Term Elections

The mid term elections are a huge factor in the 2023 outlook, and as of now we don’t know how that will go. The media is avoiding discussions of the mid terms and these critically important elections will happen Nov 8th.

If the Republicans win both the house and senate, it will give them tremendous power to stop Democrat bills on new regulations and taxes. The markets will like that a lot.  The markets don’t need stimulus since the economy is strong, banks are strong, and employment is higher.

These are times we should be celebrating with rising wages, huge cash savings, and still positive corporate earnings. The economy doesn’t need to be crushed, but rather the market is begging for more supply.  The Republicans may want to stimulate supply and the growth of the economy.

If the Dems win, supply will continue dwindle and rates rise to control inflation. It’s a losing situation that makes experts predict a recession.

Predictions: A US Recession Is Imminent

There is currently a 98.1% chance of a global recession, according to a probability model run by Ned Davis Research. “This indicates that the risk of a severe global recession is rising for some time in 2023″ …  and billionaire investor Stanley Druckenmiller said Delivering Alpha Investor Summit: “I will be stunned if we don’t have a recession in ’23.” —  in a CNN report.

In fact the over regulated housing construction industry is shutting down and with mortgage rates jumping, demand for homes at any price will drop. The demise of the housing market will contribute to recessionary trends set forth by the US government.

This roaring US dollar has reached 114 on its index and it’s putting tremendous pressure on US company’s competitiveness, and it’s causing investors to hide in cash or invest in foreign competitors. High interest rates fire up the dollar and the bond market. This sucks money out of equities.

Experts suggest the bond market won’t do well either. There might not be any wins waiting for  us in 2023. The 3 month forecast and 6-month stock market forecast are glum. It’s obvious companies are slowing production and consumers are starting to reduce spending. If companies cut production too quickly, consumer demand could keep prices high throughout 2023.

Where Will the S&P, Dow Jones and NASDAQ End Up?

Previous estimates of the S&P were for bottoms at 3500, yet we havent seen the floor of this economy. Predictions of 2900 for S&P aren’t out of the picture. The NASDAQ has already lost 30% this year while the Dow is down 22%.

With rising Fed rate, there is little to stop them from literally crashing. A stock market crash isn’t forecasted by the big investment firms, but that’s likely due to them not wanting to lose investors. Investors are selling and moving their money to cash. Not a bad idea given the dollar’s strength and their positioning to buy when the market bottoms in spring 2023. The predicted bottom then is 6 months away.

Europe’s Problems Will Affect the US Economy

Global trends are recessionary too. Europe is already in a recession and equities there could drop signficantly, beyond any forecasts, making Europe a place to avoid for investment in 2023.

Once interest rates peak and begin heading down, investors have their last opportunity to buy the dip.  This rate drop event will spawn a huge boon to investment, which could reignite inflation.

If interest rates drop and the government supports manufacturing growth, supply chain health, and cheap energy supply, 2023 could be a boom year.

Without high interest rates, employment and wages will remain strong, and the housing market could come back to life.

Most predctions of the 2023 Dow Jones, S&P and NASDAQ indexes are dour. We could see another 20% down if the Dems win the midterms and the Fed stays the course of reaching record high interest rates to control inflation.

Inflation Will Persist Through 2023

Inflation is so strong and persistent that interest rates would need to go beyond the horrendous levels they were in the early 80’s to bring it down.

“Even with the likelihood that inflation has peaked, inflation will still remain elevated for some time, as supply chain issues persist and there is still plenty of instability with the Ukraine war, which has caused significant swings in energy prices,” says Zach Stein, chief investment officer at Carbon Collective, from a report in Time.com.

Today, the Fed’s preferred gauge of inflation showed it accelerated even more than expected in August. Core inflation rose 4.9% from a year ago and wages grew .4% which means rising rates haven’t had much effect yet.

Energy Prices About to Return

What’s different beyond the next 3 months? Energy experts expect oil prices will rise in 2023, and natural gas is already on a steep rising path. Europe will experience a crisis this winter without the Baltic pipeline which was sabotaged. Nat Gas prices began rising in July 2020 at $2.72 mcf, and are now at $8.14 per mcf.

Europe can get through this winter, but next winter it will be without supply and this means all forms of energy will be called upon to make up the loss. Natural Gas prices will go well beyond record highs, which will make oil & gas company stocks very attractive. Investors see this and oil and gas stocks will rise, along with oil and gas prices themselves.  This boosts inflation.

US GDP is expected to slacken with the current outlook. None of the major forecasters are factoring in a Republican win in the mid terms, despite this being a key turning point in easing these market imbalances.

If the Dems win the Midterms, we can visualize the S&P, Dow Jones and NASDAQ sinking another 15% as consumer and producer prices slowly decline. It is believed there is a one year lag before high interest rates take effect. Given digital news media, companies have and will react faster and begin cutting back.

We’ll need to wait till after Nov8th to see who will direct the economy in 2023 and whether a stock market fall was the right prediction.