5 Reasons U.S. Markets Will Be Higher in 2023

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2022 was anything but kind to most U.S. investors. The Nasdaq suffered its worst year since the Global Financial Crisis of 2008. Inflation shot to fresh 40-year highs, war broke out in Europe, and companies like Coinbase (COIN – Free Report) , Meta Platforms (META – Free Report, and Amazon (AMZN – Free Reportsaw slower growth and were forced to lay off thousands of workers.

Is it time to dive back into stocks?

In the face of the overbearing gloominess of 2022, it can be easy to stay negative. However, history tells us that it rarely pays to remain bearish over the long haul. Zoom out and pull up a long-term chart of the major U.S Indices, and you will find that despite bear markets every handful of years, stocks tend to rise over time.

Zacks Investment Research
Image Source: Zacks Investment Research
Pictured: Chart of SPY going back to the financial crisis. Over time, U.S stocks tend to rise.

#1: Sentiment Shift: General George S. Patton once famously warned, “If everyone is thinking alike, then somebody isn’t thinking.” The National Association of Active Investment Managers Exposure Index (NAAIM), a popular measure of active managers’ exposure to equity markets, flashed one of its lowest readings on record recently. Last week, the bullish sentiment observed ranked among the 60 lowest in the history of the survey (data goes back to 1987). Meanwhile, neutral sentiment is on the rise and is the highest since early last year, while bearish sentiment remains above average. Overall, the survey paints a picture of skittishness and fear among investors.

#2: Split Government: Markets tend to prefer split government to one-sided government. In the midterm elections, Republicans took back some control of the government. Government “gridlock” usually means that significant policy changes are unlikely. While citizens may want policy changes, markets tend to appreciate certainty. Furthermore, spending is likely to slow down – a good sign for those who want cooling inflation.

#3 King Dollar Fades: The sustained move in the U.S. Dollar was a major headwind for domestic equities in 2022. However, over the past few months, the dollar has faded hard and now faces heavy overhead resistance on any rally attempts.

Zacks Investment Research
Image Source: Zacks Investment Research
Pictured: U.S. Dollar ETF UUP has faded hard in recent weeks – a good sign for equity bulls.

#4 Strong Seasonality: Stocks are entering the strongest six months of the four-year presidential cycle. Since 1950, the S&P 500 Index has been higher in the immediate six months after the midterm elections every single time. While historical precedent does not guarantee future results, I like those odds!

#5 Inflation is Cracking: As a new investor, typically the first lesson you learn is “don’t fight the fed”. Federal Reserve Chair Jerome Powell has made it clear in recent FOMC meetings that he is seeking to crush inflation through higher interest rates.

With that said, one leading indicator suggests that peak inflation may be around the corner, potentially leading to a Fed “pivot” or at least a slowing of rate increases. The price of used cars is seeing its largest decline since the Global Financial Crisis of 2008. Why is this important? Two years ago, the cost of used vehicles rose rapidly and acted as a leading indicator, signaling that higher inflation was around the corner.


This article was originally published on this site