If you are like most folks in this game, you are likely relishing the idea of being done with the nightmare that was 2022 and is ready to hit the reset button.
From my seat, the question of the day is how traders are planning to position themselves for the start of the 2023 campaign. Oftentimes, the first few days of a new calendar year act like a light switch. Whatever the focus had been at the end of the previous year is quickly forgotten, and something brand new comes to the fore in a hurry.
While I'm not sure if there will be a big change in the focus to start this year, I will note that the outlook provided by so many Wall Street analysts for the coming year is rarely so one-sided. In short, just about everybody on the planet is singing the same song right now.
The refrain goes something like this. The economy is slowing (well, the manufacturing sector, anyway). The Fed refuses to back away from its aggressive stance (I.E., Powell & Co., as well as many other global central bankers, continue to talk tough). Inflation remains too high. And as such, the Fed is about to make a "policy error" by going too far, which history shows they almost always do. This will, as we're told, most certainly push the economy into recession.
Further, the negative Nancys of the street contend that the market has not yet discounted such an event. As such, earnings estimates are too high and MUST come down - substantially. Joy.
We're also told that, according to history, the market has never bottomed before a recession begins. Therefore, the market is likely to head lower because, after all, the economy is NOT in recession at the present time - and doesn't appear to be heading into one any time soon. So, again, there is only one way for stocks to go... down.
While I do believe the most important thing for the market outlook at the present time is the question of recession, I have to admit that I get VERY nervous when everybody in the game is looking for the same thing - at the same time.
Lest we forget, stocks - particularly those previously loved high-growth names that were all the rage post-COVID - have taken a beating for a year. So, my question is, how much is enough? Hasn't the massive declines seen in every manager's former faves discounted a fair amount of negativity already?
Sure, I get the idea that higher rates mean lower multiples for high-growth names. But my key point on this first trading day of 2023 is the consumer is doing just fine, thank you. And since the service sector (which, of course, is driven by John Q Public and his family) continues to hum along, everyone may be "expecting" something (a recession) that may not actually occur.
And while I reserve the right to be wrong, and I recognize that sometimes an expectation that becomes too popular can also become a self-fulfilling prophecy, I'd like to offer up an alternative thought here.
Call me crazy, but if the economy doesn't go into recession and the Fed doesn't go too far, shouldn't we be looking ahead to better days at some point?
I know, I know. Everyone agrees here. Everything is terrible. There is no way out. The image in the crystal ball is clear, and stocks must go lower.
My question is, do they, though? We shall see. Here's wishing everyone a great first week of 2023!