Soft landing or hard landing for 2023?

[NW-Bound]

^^^ Earnings are calculated by applying accounting principles.

Stock prices are determined by greed, then fear. There may not be much rhythm or reason to it.


PS. In 2011, we helped our daughter buy her 1st home after the real estate bubble burst. When taking a walk around the area, we saw a nice townhome in a resort being put on a short-sale by the bank. Told my wife there was no way one could buy the land, then build a home for that money.

My daughter married and sold the home 3 years later for a very nice profit. I occasionally go on Zillow to see what the home is now worth. It has changed hand twice, and the last sale price was 4x what we paid.

 

[audreyh1]

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.

At the end of the recession, in June 2009, unemployment was 9.5 percent. In the months after the recession, the unemployment rate peaked at 10.0 percent (in October 2009). https://www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf

That’s why it was called the Great Recession. Definitely a hard landing.

But markets had already recovered a great deal by then. They started to recover after the March 2009 bottom.

 

[COcheesehead]

Rare to have three down years in a row, but when they happen, years two and three are worse. Not saying it will happen, but ‘22 could be just the start. See past down threes.

 

[FREE866]

I don't know , but it seems all this "bad recession is coming" talk , even if it happens, is mostly baked into equity prices at these levels. That, and economists are usually off with their predictions anyway.


Also, the Fed always says a lot of things. A year ago they predicted almost no rate hikes in 2022 so what they're saying now needs to be taken with a grain of salt. And if banks truly believed a recession was coming why is loan growth growing, and I think at a double digit pace? That makes no sense to me and doesn't sound like a recession is in the cards. Time will tell.

 

[Lsbcal]

At the end of the recession, in June 2009, unemployment was 9.5 percent. In the months after the recession, the unemployment rate peaked at 10.0 percent (in October 2009). https://www.bls.gov/spotlight/2012/recession/pdf/recession_bls_spotlight.pdf

That’s why it was called the Great Recession. Definitely a hard landing.

But markets had already recovered a great deal by then. They started to recover after the March 2009 bottom.

Yes, I think the absolute value of the unemployment rate tends to be a lagging indicator. But going into a recession its movement above its moving average tends to be a coincident or leading indicator.

 

[Freedom56]

The economy will be fine in 2023. There is still a lot of cash in the system. Prices will continue to fall as they have been throughout the year. This is looking more and more like a repeat of the dotcom bubble years of 2000-2003. Valuations of stocks will revert back to historical norms. Price inflation was good for corporate profits and price deflation is the opposite. Bond funds are now competing with money market funds that are yielding two times more with no capital risk. The trends that we saw in 2022 will continue for at least the next 6 to 9 months.

 

[karen1972]

Hard landing but fast recovering making it feel like a soft landing.

I think a lot of people didn't hire the staff they need and are running lean as they weren't willing to just keep paying up for labor and a lot over hired so there will be a labor adjustment throughout the year.

I expect most of that to shake out by mid year and projections going forward to start looking positive again so the market will price accordingly.

Housing and transportation will stabalize lower and while food may still drag the rest of the inflation numbers will come down so the fed will stop raising by year end.

However, as far as the stock market goes, I think there has been a shift back to more conservative investing. Lots of people were 100% stock, no bonds, that is no longer the case. Many younger people bought their first IBonds, were introduced to treasuries for the first time and are now looking at CDs and older folks were reminded that sub 2% inflation is not the norm.. and I see a run up in safe investments and less money going into stocks... basically a shift back to the old normal.

 

[Lsbcal]

Seems that we have a balanced outcome so far with no consensus on hard/soft stock market landings. No way to go contrary if the folks in this poll are any indication of the tug of war that is the stock market.

 

[11522914]

I see a run up in safe investments and less money going into stocks... basically a shift back to the old normal.

I sold all my stocks in June and everything is invested for income now. Doesn't mean I won't ever go back into stocks but this has worked out well for me, even with crazy inflation.

I agree we need a shift back to the old normal.

 

[Sirka]

Bear market continues into 2023

What is not know are the unknowns for 2023. In 2022 we these very negative "unknowns":
(1) spiking high inflation
(2) Russian invasion of Ukraine

The late Marty Zwieg coined the saying "don't fight the Fed". Bears thinking about.

I'm going into 2023 feeling the opposite of how I felt going into 2022.

+1
Going into 2022 I expected correction and we got 'bear' market, so 2023 may be full of bad news also. We don't have a clue what is going on in China, etc

 

[Lsbcal]

+1
Going into 2022 I expected correction and we got 'bear' market, so 2023 may be full of bad news also. We don't have a clue what is going on in China, etc

You can be sure it isn't good for us.

 

[FLJim]

Hard or soft landing doesn't matter as long as you are positioned for the landing and have a plan.

As they say in the airline industry, a good landing is any one that you can walk away from.

 

[Chuckanut]

If you are a contrarian this may be a hopeful sign for a better stock market in 2023.

https://www.wsj.com/articles/invest...s-during-2023-rally-f3ecf741?mod=hp_lead_pos2

Since the article is behind a paywall here is a relevant quote.

Investors have pulled a net $31 billion from U.S. equity mutual funds and exchange-traded funds in the past six weeks, according to Refinitiv Lipper data through Wednesday. That marks the longest streak of weekly net outflows since last summer and the most money pulled in aggregate from domestic equity funds to start a year since 2016.


Over the same period, investors have funneled roughly $12 billion into international equity funds, about $24 billion into taxable bond funds and nearly $3 billion into municipal bond funds.


Flows toward funds outside of domestic equities indicate a level of apprehension from investors who aren’t buying the 2023 rebound in U.S. stocks, some analysts say. The outflows provide little reassurance to investors wrestling with fears that market sentiment could be turning. Last week, the S&P 500 dropped 1.1%—its first weekly decline of the year—trimming its 2023 gains to 6.5%.

Among individual investors, net purchases of single stocks have climbed since the start of the year, while net buying of ETFs has stagnated, according to Vanda Research data.


For individuals, single-stock buying has been dominated by one market darling: Tesla. Over the past several weeks, Tesla has accounted for roughly a third of all single-stock net purchases by individual investors, Vanda found.

 

[Lsbcal]

Since October the international funds have done very well. So has the SP500 though not quite as well and that is maybe because the US stocks have not gone down as much as international stocks. Also the dollar has come down helping international (see: https://fred.stlouisfed.org/series/DTWEXBGS )

Here are the SP500 charts and small cap international (SCZ etf):

 

[matjung]

In my opinion everyone is hoping for a soft landing. This may not be tough enough to win against inflation. Soft landing this year, hard landing in 2024.
The track record of the Fed in getting it soft isn't the best, or is it.
Have a look at 2005, 2006 and 2007.

 

[theo2]

To many other happenings going on in the world for anyone to predict this,,,,, anything can throw a wrench into this.

 

[Montecfo]

true. And the strength of the economy makes a hard landing appear more likely, as stronger measures may be necessary to slow it.

But we will see. It is slowing already and economy still has a lot of rate hikes from las year to work through.

 

[Jeffman52]

The fed is always a bit late to jump in and a bit late to jump out.When the Fed see's the improvement they will continue their measures longer than necessary thus a hard landing.


What scares me is that when the economy is recovering, if the market starts a fast recovery as well (as it will with pent up demand), the Fed will try to stomp it out thus making the recovery time longer than it needs to be.

 

[steelyman]

Something must be going a little better in 2023 (so far) vs 2022. I added a moving average to the annual graph of my retirement portfolio and it appears to be recovering from a case of pretty severe erectile dysfunction (that’s one of them there Wall Street terms).

 

[Montecfo]

Something must be going a little better in 2023 (so far) vs 2022. I added a moving average to the annual graph of my retirement portfolio and it appears to be recovering from a case of pretty severe erectile dysfunction (that’s one of them there Wall Street terms).

Contrarily, I think returns for many investors, after recent selloff especially appear to be, well, flaccid.

 

[jim584672]

No landing, the wheels don't even touch the tarmac unless we go to 6%.

 

[steelyman]

Contrarily, I think returns for many investors, after recent selloff especially appear to be, well, flaccid.

Seemingly. Well, the optimist would call that a soft landing?

 

[ownyourfuture]

Copied from a message board.

Interest rates have been at a ridiculously low level for over a decade. Moving from this level to a more historically normal level in such a short period of time will create a huge shock. Lower interest rates leads to more borrowing & higher prices, higher interest rates leads to lower prices & less borrowing.

People who are heavily leveraged will not be able to pay their debt at higher interest rates. Prices will take time to be corrected to a more suitable level to balance out with the higher interest rates. This will be a painful transition.

Inflation will likely persist for many years & interest rates will be used to bring it under control but it will have to be balanced otherwise we will enter a recession. If we enter a recession they will have to lower interest rates to stimulate the economy which will allow inflation to creep back up & the cycle will start over.

It is very difficult to see anything other than a multi year recession & most likely a lost decade for the stock market as it creeps back down to higher interest rate valuations. The only way to protect yourself as an investor, is to seek value stocks with high free cash flow yields, stocks priced cheaply to the value of their tangible assets.

It is hard to find these right now, they exist, but they will become more common.

 

[Chuckanut]

I agree that interest rates are now in what has been a more normal range for most of my life.

I am not sure about the stock market having a lost decade. Good companies will find a way to grow and profit, thus offering us a better return on our money. Those that can't will wither. What else is new?

What does concern me is out of control spending by the Federal government. No longer will they be able to finance that practice by selling us bonds in the area of 0.5 to 2%.

 

[FREE866]

Copied from a message board.

Interest rates have been at a ridiculously low level for over a decade. Moving from this level to a more historically normal level in such a short period of time will create a huge shock. Lower interest rates leads to more borrowing & higher prices, higher interest rates leads to lower prices & less borrowing.

People who are heavily leveraged will not be able to pay their debt at higher interest rates. Prices will take time to be corrected to a more suitable level to balance out with the higher interest rates. This will be a painful transition.

Inflation will likely persist for many years & interest rates will be used to bring it under control but it will have to be balanced otherwise we will enter a recession. If we enter a recession they will have to lower interest rates to stimulate the economy which will allow inflation to creep back up & the cycle will start over.

It is very difficult to see anything other than a multi year recession & most likely a lost decade for the stock market as it creeps back down to higher interest rate valuations. The only way to protect yourself as an investor, is to seek value stocks with high free cash flow yields, stocks priced cheaply to the value of their tangible assets.

It is hard to find these right now, they exist, but they will become more common.

There are a whole lot of assumptions in that post. there is a tendency for people to think "if that happens then this will happen". If it was only that simple!


We had higher rates in the 80s and 90s and markets did quite well.