With 2022 behind us, we look forward to 2023 and the continuation of a tradition in which market analyst and pundits try to predict the future. To understand what weight, if any, we give predictions for 2023 let’s look to see how past predictions have fared. Below you will find a compilation of predictions put together by Dimensional Fund Advisors and you will find, unsurprisingly, that predicting the future is as impossible as it seems.
Morgan Stanley: Stock Market Outlook 2022
- FORECAST:“Opportunity in Growth/Technology Stocks. We are less negative on growth than we have been, given the magnitude of recent underperformance vs. the broad market. Recent underperformance despite numerous impressive earnings reports means many of these large-cap growth names are now trading at very reasonable valuations.”
- REALITY: Growth stocks were crushed by rising interest rates in 2022, experiencing their worst calendar year in over a decade. As of December 31, 2022, the Russell 3000 Value Index outperformed the Russell 3000 Growth Index by 21%. Value also dominated globally as of the end of 2022, with the MSCI All Country World IMI Value Index outperforming its growth counterpart by 20%.
Blackstone: The Ten Surprises of 2022
- FORECAST: “Gold reclaims its title as a haven for newly minted billionaires, even as cryptocurrencies continue to gain market share.”
- REALITY: Gold prices in 2022 were influenced by the conflict between Ukraine and Russia, high levels of inflation, and the increase in interest rates by the US Federal Reserve. Gold began the year at a value of $1,814. In early March, gold reached a year high of $2,049 following Russia’s invasion of Ukraine but reached a low of $1,627 in October and ended the year at a value of $1,824. From the beginning of the year, gold experienced a gain of only 0.5%. Cryptocurrencies faced a difficult year with the market losing nearly $2 trillion in market value compared to its high in November 2021. The declines were attributed to the fall of major crypto players, the scandal regarding FTX (a large crypto exchange), and the realization that additional regulations might be needed to regulate this space.
Charles Schwab: 2022 Fixed Income Outlook: Rough Waters
- FORECAST: “The yield curve could go through bouts of steepening from time to time, but the long-term trend is likely to be a “bear flattener,” where yields rise but the difference between short- and long-term yields narrows. Our estimate for the high end of the benchmark 10-year Treasury yield is in the 1.75% to 2.0% range.”
- REALITY: The 10-year treasury yield started the year at 1.5% but rose through most of 2022 and topped 4% in October, a level not seen since 2010. There was also a notable inversion between the 1 to 10 year and 20 to 30 year points on the treasury yield curve, contrary to the forecast of a flat yield curve. Yields for the 10-year peaked around late October/early November and then retreated with the Federal Reserve slowing down their tightening measures and inflation measures seemed to indicate some moderation.
DoubleLine Capital: Gundlach’s Forecast for 2022
- FORECAST: “When the US dollar starts to decline, you’re going to see a tremendous outperformance by non-US stocks. Emerging markets will be a very strong performer when that happens.”
- REALITY: Contrary to the forecast, as the year ended, the US dollar was set to post an annual gain of 7.9% against a basket of other currencies. The conflict in Ukraine, high oil prices, rising inflation, and a stronger US dollar all weighed on emerging markets performance in 2022. As of November 2022, the MSCI Emerging Markets Index was down about 40% since its peak in February 2021. However, in a broader context, recent performance in Q4 proved promising as the MSCI Emerging Markets Index and MSCI World ex USA Index outperformed the Russell 3000 Index by nearly 2.5% and 9% respectively, highlighting the potential benefits of staying globally diversified.*
J.P. Morgan: 2022 Market Outlook: More Upside For Stocks, Economic Growth To Rebound
- FORECAST: “We expect S&P 500 to reach 5050 on continued robust earnings growth as labor market recovery continues, consumers remain flush with cash, supply chain issues ease, and inventory cycle accelerates off historic lows.”
- REALITY: The S&P 500 Index closed the year at 3,840 points, roughly 24% lower than predicted.*
Nuveen: Nuveen 2022 Outlook
- FORECAST: “We anticipate interest rates will move somewhat higher over the course of 2022, and, while it is not our base case, we wouldn’t be surprised if the US Federal Reserve starts increasing rates before the end of the year.”
- REALITY: Not only did the US Federal Reserve increase rates as early as March, they also increased them in a significant manner. Over the course of 2022 there were seven rate hikes, taking the target fed funds rate from around 0% as early as Q1 to 4.25-4.50% with the last hike in December.
Wells Fargo: Wells Fargo 2022 Outlook
- FORECAST: “We expect average consumer price inflation of 4.0% in 2022, down from 6.2% in October 2021. Inflation should remain above its long-term average but should slowly ease if supply shortages normalize as we expect.”
- REALITY: Inflation, as measured by the consumer price index, increased in 2022. The Federal Open Market Committee (FOMC) decided to start increasing rates in March to combat rising inflation eating into the purchasing power of everyday Americans and bring inflation down to its long-term 2% target. These efforts did pay off to some degree towards the end of 2022 as inflation levels rose at an annual rate of 7.1% in November as compared to 7.7% in October, and the expected rate of 7.3%.
As you can see, predicting the future is hard. Successful investing involves understanding the market, rather than attempting to outsmart it, and utilizing that understanding to make informed decisions. For a more grounded approach, we look to academic research to inform our allocations and leave the guessing out of it. This is not a strategy hinged on predicting what will happen next but rather a belief that human ingenuity will persist and that allocating a portfolio based on company size, value and profitability matters (read more about this here). The truth is no one knows what’s in store, but our team will plan for all the possibilities and guide our clients wherever the journey will take them. Have a great 2023 and thank you for the trust you place in our team!
*Past performance is not a guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Short term performance results should be considered in connection with longer term performance results.