After dropping more than 18% in 2022, the S&P 500 is now up around 6% year to date (as of May 4), leading some investors to wonder if it's safe to invest now. The short answer is "yes." The longer answer is, "yes, you should be investing regardless of market movements, if you have the means."
"In the first half of 2023, the S&P 500 is expected to re-test the lows of 2022, but a pivot from the Federal Reserve could drive an asset recovery later in the year, pushing the S&P 500 to 4,200 by year-end," the investment bank said in a research note.
Currently, the consensus estimate is for an 8% contraction in the growth rate, followed by a 6% contraction in the second quarter. For calendar-year 2023, the consensus earnings estimate is for a 2% contraction. But that estimate is still coming down, and based on historical patterns, could continue to do so.
The stock market is poised for a strong 2024 as corporate earnings are poised to impress. "Earnings are likely to outpace the economy in 2024," Bank of America's Savita Subramanian said in a Monday note. Also helping the outlook for stocks is the trillions of dollars of sidelined cash that could get invested.
“We expect headline inflation in 2023 to slow to 3.7 per cent – well below the Reserve Bank's current forecast of 4.7 per cent,” Mr Evans said. Core inflation – the RBA's preferred measure that excludes large price movements – is projected to be 6.5 per cent, up from 6.1 per cent in the September quarter.
Looking ahead to second-quarter reports, analysts are calling for S&P 500 earnings to fall 6.4% compared to a year ago. Fortunately, analysts are projecting S&P 500 earnings growth will rebound back into positive territory in the second half of 2023.
Stocks could soar 10% by mid-2023, but investors should expect a decade of flat markets after that, major investment bank says. Traders at the New York Stock Exchange on Jan. 3, 2023.
Stocks expected to rise over next year
Through the first quarter of 2024, analysts expect the S&P 500 to climb 8 percent, to 4,289 from 3,970.99 when the survey closed on March 24. That follows a year of optimism in 2022, when each quarterly survey predicted that the market would be higher in a year.
“The bear [market] is almost over, and a new exciting bull market awaits in the second half of 2023,” he said, pointing to potential in technology stocks in particular.
Wall Street analysts expect companies in the S&P 500 to boost earnings by 1.5% in 2023, according to Refinitiv. "In a plain-vanilla recession, earnings go down 20%. We've never had a recession where earnings were up at all," Rosenberg told MarketWatch, calling this year's forecasts a "glaring anomaly."
Once you cash out a stock that's dropped in price, you move from a paper loss to an actual loss. Cash doesn't grow in value; in fact, inflation erodes its purchasing power over time. Cashing out after the market tanks means that you bought high and are selling low—the world's worst investment strategy.
10-Year Stock Market Forecast Based on Historical Returns
We should expect over the long term an average 6.2% gain. But 66% of the time, we should expect an average gain of 16.54%.
Analysts are forecasting full-year profit growth for 2023 of just 1.2%. At the same time, the S&P 500's forward 12-month price-to-earnings ratio is now at 19 compared with 17 at the end of 2022 and a long-term average of about 16, according to Refinitiv data.
In a nutshell, nobody knows when the stock market will recover and start reaching new all-time highs. It could happen in a year or so if things go very well economically, or it could take several years. After the dot-com crash, it took some solid companies a long time to get back to where they were.
Stock market crashes wipe out equity-investment values and are most harmful to those who rely on investment returns for retirement. Although the collapse of equity prices can occur over a day or a year, crashes are often followed by a recession or depression.
Investing in government and corporate bonds
Government and corporate bonds are considered the safest option as they offer a fixed rate of return. The advantage of this is that they do not fluctuate wildly like other investments, but the disadvantage is that without the lows there are no corresponding highs.