Soft landing or hard landing for 2023?

[audreyh1]

If the S&P is already down 19% YTD (and was down 25% at some point in 2022), then it’s really about how much farther might it drop in 2023.

 

[marko]

If the S&P is already down 19% YTD (and was down 25% at some point in 2022), then it’s really about how much farther might it drop in 2023.

Is the stock market the criteria or is it other indicators like unemployment, massive deflation or such?

 

[Lsbcal]

Is the stock market the criteria or is it other indicators like unemployment, massive deflation or such?

As I mentioned above, my intent is to focus on stock market returns. So soft and hard landings really refer to stocks. I assume if the economy has a hard landing, earnings will fall and so will stocks.

The first Friday of January we get the employment report.

 

[NW-Bound]

15% isn't a hard landing lol. 50% would be a hard landing.

The S&P is now at 3844, down -20% from the high of 4766 a year ago on 12/26/2021. Only another -30% to go.

We were there twice in the last 20 years: the tech bubble bust followed by 9/11, and then the subprime fiasco. Somehow, people survived it.

 

[milford]

Soft landing would result in prolonged inflation... so although JP comes out and says he's hopeful for a soft landing, in actuality he is aiming for a hard landing. It is the only way to break the various bubbles (inflation, housing, auto, labor shortage, etc...). The economy desperately needs a reset as we have too much imbalance everywhere.

 

[audreyh1]

Seems like inflation has come down a long way on its own. Will it get all the way down to 2% anytime soon? Probably not, but if it gets below 5% we’re a lot closer already with the current Fed path raising rates a bit more and waiting it out maybe.

Who knows!

 

[MichaelB]

There is some economic research showing an inflation expectation threshold of 5%. When expected inflation falls below that number it ceases to be a major concern, when it hits that level it becomes a top issue.

Once below 5%, there is much greater indifference regarding the absolute number. My understanding is the Fed views this expected inflation together with the employment cost index as two critical measures.

 

[audreyh1]

There is some economic research showing an inflation expectation threshold of 5%. When expected inflation falls below that number it ceases to be a major concern, when it hits that level it becomes a top issue.

Once below 5%, there is much greater indifference regarding the absolute number. My understanding is the Fed views this expected inflation together with the employment cost index as two critical measures.

Interesting!

 

[marko]

But what do you do if stocks/bonds are your main source of wealth and a mild downturn develops into a full fledged depression? It would undoubtedly take events unknown to anyone at the present. Not referring to retirees that have a sizable pension or a rich old uncle who is set to go soon.
.

We live exclusively off our dividends and interest (and SS) which have been remarkably steady and stable through good times and bad, even in 2000 and 2008.

As such, the shorter term net value is of less concern.

I just don’t view how we land as having any long-long term impact. It's always "the end of the world" until it isn't. This too we will survive.

 

[Dash man]

We live exclusively off our dividends and interest (and SS) which have been remarkably steady through good times and bad, even in 2000 and 2008.



As such, the shorter term net value is of less concern.



I just don’t view how we land as having any long-long term impact. It's always "the end of the world" until it isn't. This too we will survive.

We are currently receiving $105,954/year in dividends, from companies that have continued to pay them for decades with increases each year. Add to that interest from bonds, savings, my SS and a small pension, we will bring in enough to not have to worry about a recession. If dividends were cut by a few companies, we’re diversified enough not to be hurt significantly. On average our dividends grow each year enough to beat inflation, including this past year.

 

[Born2Fish]

none of the above. My bet is the fed is going to turn the money printer back on sooner than later... Powell has already broken the ice by mentioning raising the inflation target.
But then I believed it was impossible for the fed to just print money to fund the debt, yet here we are.

"We're not considering that. We're not going to consider that. Under any circumstances," Powell said. "We're going to keep our inflation target at 2%. We're going to use our tools to get inflation back to 2%," he said, although he allowed "there may be a longer-run project" that could take a fresh look at the central bank's inflation goal.

Powell's response in December 2020 quoted above. I don't think Powell meant to imply the Fed would change their inflation target at all to resolve the current situation.

However, like anything political, their position may be "subject to change".

 

[NW-Bound]

We are currently receiving $105,954/year in dividends, from companies that have continued to pay them for decades with increases each year. Add to that interest from bonds, savings, my SS and a small pension, we will bring in enough to not have to worry about a recession. If dividends were cut by a few companies, we’re diversified enough not to be hurt significantly. On average our dividends grow each year enough to beat inflation, including this past year.

I am a total-return investor, and do not invest for dividends although I tend to be on the value side and shun high P/E stocks. Yet, when I looked at Quicken report, found that dividends and interests way more than cover our expenses.

But about the dividend growth, I went back a few years earlier to check, and found that my dividends grew hugely from 2018 to now. I only looked at the total as summed up by Quicken, and have not broken down to each specific company or sector. I suspect that a lot of the dividend growth came from oil and gas companies that I have.

 

[Lsbcal]

We live exclusively off our dividends and interest (and SS) which have been remarkably steady and stable through good times and bad, even in 2000 and 2008.

As such, the shorter term net value is of less concern.

I just don’t view how we land as having any long-long term impact. It's always "the end of the world" until it isn't. This too we will survive.

We also get a fair amount of dividends and interest but I'm a total return investor and have done decently in 18 years of retirement. Probably no matter how things work out going forward, we will be just fine. Even if I steer the ship a little off course.

Several folks reading this thread have an investment approach that is not a strong function of stock prices. This thread is intended to focus on just how bad do you think equities will be affected in 2023. But I take the point that one can find investments that are steadier then stocks although they may not have quite the real returns over the long haul.

 

[audreyh1]

But what do you do if stocks/bonds are your main source of wealth and a mild downturn develops into a full fledged depression? It would undoubtedly take events unknown to anyone at the present. Not referring to retirees that have a sizable pension or a rich old uncle who is set to go soon.

You are OK if you have a really big portfolio, say greater then 25x your basic spending needs AND you are not too young. But otherwise you might get in trouble.

In any case if one has a sell strategy (not ad hoc) it should be coupled with a repurchase strategy and acknowledged that whipsaws are very possible. If you are into buy-hold you must hold for the very long term.

We live exclusively off our dividends and interest (and SS) which have been remarkably steady and stable through good times and bad, even in 2000 and 2008.

As such, the shorter term net value is of less concern.

I just don’t view how we land as having any long-long term impact. It's always "the end of the world" until it isn't. This too we will survive.

We are currently receiving $105,954/year in dividends, from companies that have continued to pay them for decades with increases each year. Add to that interest from bonds, savings, my SS and a small pension, we will bring in enough to not have to worry about a recession. If dividends were cut by a few companies, we’re diversified enough not to be hurt significantly. On average our dividends grow each year enough to beat inflation, including this past year.

No pension or SS here so we live completely off our investments and I’m a total return investor, ignoring dividends completely and making no attempt to preserve “principal”.

I guess when it comes down to it, our retirement stash has grown significantly since 1999 even inflation adjusted we are still ahead in spite of 2008 knocking us back to the start. Plus our spending hasn’t kept up with our withdrawals which have increased as our portfolio grows. So I’m sure that impacts my attitude of little concern of what the next year or two brings other than curiosity.

No, I really don’t believe we’re going to revisit the 1930s, but even if we did we have a large amount of fixed income on hand.

Knocking on wood of course as I’m always superstitious about tempting fate, ha ha.

It’s always nice to have an other option in a poll, even better when it references bacon. Our Christmas jalapeño poppers:

 

[Montecfo]

I expect a hard landing as it is just very hard to steer the ship through such stormy seas.

But hard landing or soft should matter little. Either way the economy will slow, earnings decline and stocks fall.

But the decline sows seeds for its own growth via easier comparisons quarter over quarter and I expect growth will return rather quickly. Plus lower interest rates

In the meantime I will be adding some favored growth names.

No pension. Total return investor

 

[marko]

This thread is intended to focus on just how bad do you think equities will be affected in 2023. .

Apologies for expanding your thread a bit to a dividend discussion.

It was in reply to your question of "...But what do you do if stocks/bonds are your main source of wealth and a mild downturn develops into a full fledged depression?..."

In my case and apparently several others here, a hard or soft landing doesn't matter a whole lot. I am expecting a hard landing for equities which can present opportunities for buying low.

How bad? Anyone who claims to know is lying.

 

[Lsbcal]

Marko, no apologies necessary. Bouncing around the OT is expected and sometimes brings up good OT conversations.

 

[Dash man]

Apologies for expanding your thread a bit to a dividend discussion.

It was in reply to your question of "...But what do you do if stocks/bonds are your main source of wealth and a mild downturn develops into a full fledged depression?..."

In my case and apparently several others here, a hard or soft landing doesn't matter a whole lot. I am expecting a hard landing for equities which can present opportunities for buying low.

How bad? Anyone who claims to know is lying.

Agreed. Whether you call yourself a “Total Return” investor or a “dividend” investor, the goals are the same and dividend growing growth stocks will soften the effects of a recession on a portfolio with strong dividend paying companies.

 

[FloridaJim57]

The whole thing depends on the job market which has been one of the few saving graces of this downturn.

 

[rodi]

I have no idea and didn't vote.

I'll just rebalance every quarter, if needed, and go with the flow.

 

[Lsbcal]

The whole thing depends on the job market which has been one of the few saving graces of this downturn.

The Fed is actually predicting higher unemployment. Something like 4.6% by the end of 2023 from 3.7% now. I think that's signalling "expect a recession".

Next unemployment report is Jan 6th.

 

[NW-Bound]

How about a sideways landing of the usual up and down markets driven by the usual irrational fears and joys.

That does not sound good!

Here's the aftermath of a jetliner whose pilots made the mistake of trying to land in a 25-knot crosswind, while the plane was certified for a 20-knot (23 mph) crosswind limit for landing in reduced visibility on a wet runway. Pilot fatigue was also a contributing factor.

 

[audreyh1]

The Fed is actually predicting higher unemployment. Something like 4.6% by the end of 2023 from 3.7% now. I think that's signalling "expect a recession".

Next unemployment report is Jan 6th.

But in a traditional recession unemployment is 6% plus. After 2008 it went above 10% for a while I believe.

5% unemployed used to be considered full employment.

 

[Lsbcal]

But in a traditional recession unemployment is 6% plus. After 2008 it went above 10% for a while I believe.

5% unemployed used to be considered full employment.

I looked up the 2008 recession. It started December 2007 according to NBER. The unemployment rate was 5.0%. The 12 month average was 4.6%.

For November 2022 the rate was 3.7% and the 12 month average was 3.68%. The UER going above it's moving average has a history of being a bad sign.

 

[Chuckanut]

Speaking of prediction skills:

Apparently Wall Street is great at predicting things like earnings, but they are far less succesful at predicting the market.

From the WSJ:
https://www.wsj.com/articles/wall-street-nailed-earnings-but-missed-the-bear-market-11671912336

A few quotes from behind the paywall....

Last year Wall Street analysts, the communicators-in-chief to the investor community for the likes of Goldman Sachs, JPMorgan Chase & Co. and Citigroup, were collectively spot on in estimating corporate earnings for S&P 500 companies. The FactSet consensus prediction is for $221 a share this year, exactly as predicted, with the final quarter still based on estimates.

The miss of less than $1 is the smallest in percentage terms for estimates at the end of the year since 1995, data from Refinitiv IBES show, while the consensus has on average been out by more than 9% since then.

Their success is rather spoiled by Wall Street’s total failure to anticipate the bear market in stocks and bonds.

The average forecast last December for this month’s interest rate was just 0.5%, according to Consensus Economics. The Fed this month raised rates to a range of 4.25% to 4.5%. Miss a change of this importance and there is little hope of getting anything else right.