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Ep 9: Where is the market headed in 2023?

Show Description

Where is the market headed in 2023?

The real question is where is the Fed going in 2023?

One year ago, the Fed was suggesting that the inflation we were seeing was transitory. I was suggesting my clients that possibly it was not, and as it turns out inflation stayed around for all of 2022 and persists.

This time last year, the federal funds rate was essentially 0.08%; it’s now sitting at about 3.78%. The last time we saw fed funds rate that high was all the way back in October 2005.

US inflation bottomed at right at 0% in May 2020 and kind of floated back up a little bit around 1 ¼ – 1 ½ percent until about March 2021. Then it just absolutely took off like a rocket ship and peaked in June 2022 at 9.1%. We’re now down to somewhere around seven or 7.1% and hopefully headed in the right direction. The numbers are definitely trending down.

The market is currently trading at a level that goes back to several points over the last two years. We’re trading back to where we we’re in about the middle of October, and then before that around the middle of September. Before that, through the month of July. Then, you have to go all the way back to March 2021 to find this level again. So that’s the time frame I want to talk about – March 2021.

March 2021 was a period of euphoria that I have never seen in the investing markets. And here is the crux of all that happened during that period: valuations didn’t matter. 2022 has been where we have dealt with the cleanup of this mess.

So – where is the market heading in 2023? I don’t know. I have a hunch that it might look similar to this year. If we don’t get a recession, things might be OK. If we do get a recession, I lay out a few suggestions that can be executed between you and your financial advisor. Barring any major event that we just can’t see, I do think inflation continues to come down. We’ll see how that impacts the rest of the economy.

Listen further for data on the fair value of the S&P 500 and where that could be headed based on changes to EPS and P/E. I also discuss a few things you can consider, depending on where you are financially and what investing “game” you are playing.

This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit thefinancialpurpose.substack.com

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