“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.
"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.
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.
Here are some additional reasons why 2023 is shaping up to be a historic bull market. The previous week's better than expected Consumer Price Index (CPI), and Producer Price Index (PPI) confirmed that inflation was on the decline. It's still too high.
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.
10% Return for S&P 500 a Real Possibility by End of 2023
And in today's market, with its newfound emphasis on fundamentals, earnings really matter. Short of a recession — a very real possibility — consensus estimates are for about 5% earnings growth for S&P 500 companies in 2023.
The stock market is poised for a strong rally in 2024 as corporate earnings impress and trillions of dollars of sidelined cash gets invested, according to a Monday note from Bank of America.
4, 2023, the S&P 500 had spent 282 calendar days in a bear market, per Yardeni.
The S&P 500 gained 0.6% on Thursday, pushing the market 20% higher than the trough stocks hit in October, closing at 4,294. That means Wall Street was finally released from the claws of a bear market — when stocks falls 20% or more from a recent high for a sustained period of time — that began in June 2022.
Stocks have continued their rebound into 2023, delivering one of the best openings to a calendar year since January 2000. The buoyant mood intensified last week following the Federal Reserve's widely expected quarter-point interest rate hike.
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.
The S&P 500 is up about 9% so far in 2023 after falling 19.4% in 2022. Gains this year are largely thanks to big growth and technology stocks, which have rallied as other areas of the market have faltered, like regional banks.
Taking the past 12 bear markets into consideration, the average length of a bear market is about 14 months. How bad has the average bear been? The shallowest bear market loss took place in 1990, when the S&P 500 lost around 20%. The deepest by far happened during the financial crisis between 2007 and 2009.
Keep a long-term outlook
It could take months or even years for the market to fully recover, but it will rebound eventually. In the short term, there's a chance that your investments will take a hit. Over the long run, though, you're far more likely to see positive average returns.
The average length of a bear market is 292 days, or about 9.7 months. That's significantly shorter than the average length of a bull market, which is 992 days or 2.7 years. Every 3.5 years: That's the long-term average frequency between bear markets.
That meant the S&P 500 suffered its longest bear market since the 484 trading days ending in May 15, 1948. Excluding this most recent bear market, the average bear market lasted 142 trading days.
Typically during the early part of a recession, the stock market has negative returns. This is often because of the negative sentiment around poor or lackluster corporate earnings. But the stock market will often recover before the recession is over.
Often, stocks fall before a recession starts and rise before it's over. The economic research bureau “dates recessions only after they've begun,” Marlena Lee, the global head of investment solutions at Dimensional Fund Advisors, said in an email. “Markets, on the other hand, call them well in advance.”
But other experts expect the start of a new bull market to drag into 2024, including Charles Lieberman, managing partner and chief investment officer, Advisors Capital Management.
Based on the accrued inflation data and our revised growth forecast, we've increased our year-end 2023 forecast for headline inflation from 3.4% to 3.7% and for core inflation from 2.8% to 3.6%. With upgrades to both our growth and inflation forecasts, we've raised our monetary policy forecast as well.
After enduring the fourth-worst year in its history, the Nasdaq 100 (NASDAQ: NDAQ) index is roaring back to life. The tech-heavy index finished out 2022 with losses of nearly 33%, its steepest loss since 2008. But as of May 18, the Nasdaq 100 was up 27% year to date in 2023.
Morningstar also points out that the RBA's central forecast is for growth around 1.5% in 2023 and 2024, which would be more than a 50% decline from 2022's growth rate. A slower growth rate obviously has implications on spending and corporate earnings.
“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.
Stock market predictions
Thankfully, 2023 started very positively for most of the ASX, with its best start to the year in at least three decades. On top of that, Westpac chief economist Bill Evans expects inflation to slow to 3.7% — well below the RBA's prediction of 4.7% — this year.