Foolish Forecasts and Questions Worth Asking It's the last trading day for 2022 - which means it's time for some 'foolish forecasts'. The S&P 500 booked a 19.4% loss this year... its 4th worst since 1945. My foolish forecast is the lows are not yet in... however 2023 will represent opportunity.
The 40-Year Tectonic Shift2022 will be remembered as an important turning point. Not because the S&P 500 surrendered 15% to 20%... it will be remembered for the tectonic shift in monetary policy. For the first time in over a decade - interest rates are finally trading at closer to "normal levels". What's more, we are not going back to 0% to 2.0% rates for a long time. And that has many implications for how to choose to invest...
Watching the VIX for a Market ReversalWith the VIX approaching a level of 20 - the market feels overly complacent. The S&P 500 is now around 15% off its October low - resembling what we saw in June. My guess is should we see the VIX below 20 - expect the market to reverse shortly thereafter.
We’ve Seen This Script BeforeQ3 2022 big-tech earnings are behind us - with only one winner. Apple reported inline results with weak guidance - but enough to send the stock 7% higher. The rest however were slaughtered on weak earnings and forward guidance. But it was the Facebook's "metacurse" which sent the stock reeling almost 30%... Amazon was also crushed on a poor Q4 outlook.
Druckenmiller Warns of 2023 ‘Hard Landing’There are few smarter in the investing world than Stan Druckenmiller. For 30 straight years he averaged a 30% CARG whilst not having a single losing year. It's unparalleled. He is warning that stocks are still over-valued (despite a 24% correction) and a hard-landing is likely by the end of 2023
A Foolish ForecastThe business of forecasting is very difficult... what I think is a fool's errand. But when it comes to forecasting the economics of 330M people - their behaviour - and the specific impact on stock prices - it's near impossible.
Trees Never Grow to the SkyOver the past three decades - I've developed a strong appreciation for market cycles. For example, I know that it's impossible to predict the future with any certainty. However, what I can do is prepare based on what I know to be true.
The Pendulum SwingsWhen things are going well and prices are high, investors rush to buy, forgetting all prudence. Then, when there’s chaos all around and assets are on the bargain counter, they lose all willingness to bear risk and rush to sell. And it will ever be so - Howard Marks
Markets Big Bet on a Dovish FedThe S&P 500 is pushing into an area of clear technical resistance. What's more - fundamentally it's no longer cheap at approx 18.5x forward earnings. My thinking is the market is not an attractive risk/reward bet at these levels... and are under-appreciating the task in front of the Fed.
The Bull vs Bear Battle Lines are DrawnThe bulls have market momentum supported by solid breadth. We are past peak inflation (it would seem) which lends itself to a more dovish Fed (in theory). However, valuations are high - trading 18.5x forward. What's more, the Fed is withdrawing liquidity - not adding to it. That's an argument for the bears.
