It may seem like just a short while ago that 2022 was getting underway, but the reality is that this has been a long and eventful year and it is about to come to a close. Just to put into perspective how long it's been since last New Year's Day, at the start of 2022 the stock market was still making all-time highs, mortgage rates were just above 3%, and most experts thought inflation was going to be "transitory."
Every year, I sit down and make some bold predictions for the stock market, and I've done pretty well recently. While nobody has a crystal ball (especially me), here's a recap of how my bold predictions for 2022 played out, and five things I think have a good probability of happening in 2023.
Keeping me honest: How'd I do in 2022?
I believe in holding myself accountable for predictions, regardless of how they played out, so here's how my five bold predictions for 2022 went. For the full versions, you can read last year's article, but here are the quick versions:
- Value stocks will outperform growth. As of mid-December 2022, the Vanguard Value ETF (NYSEMKT: VTV) has outperformed the Vanguard Growth ETF (NYSEMKT: VUG) by 27 percentage points, so it's fair to call this an accurate prediction.
- The Fed will raise interest rates faster than expected. Last December, the latest Fed projections called for just one rate hike in 2022. Rates have risen by 375 basis points in 2022 through November, and it's likely they'll have increased again by the time you read this, so this proved to be a good prediction.
- Home prices will rise by double digits again. According to Zillow (NASDAQ: Z)(NASDAQ: ZG), home prices increased 13.5% year over year as of Oct. 31. While the year isn't quite over yet, this sounds like a win.
- SPACs will make a comeback. Well, I can't win them all. The SPAC market is essentially dead as I'm writing this.
- Crypto will have a rough year. Through Dec. 12, Bitcoin (CRYPTO: BTC) and Ethereum (CRYPTO: ETH) are down by 64% and 66%, respectively, for the year.
So, while we're not quite at the end of the year as of this writing, it's safe to say four of the five were accurate. I'm happy with these results, as some of these (especially the crypto call) were considered very bold at the time.
5 bold predictions for 2023
Now let's get to the new ones. Generally speaking, they're more upbeat than last year's predictions.
1. The Fed will successfully get inflation in check
Inflation has been running hot since mid-2021, but it seems like we're finally starting to turn a corner. And I'll go out on a limb and predict that the inflation rate will drop dramatically in the first half of 2023. Month-over-month inflation has actually been rather cool, and we're seeing major declines in housing and energy prices, two of the top Consumer Price Index components. To be sure, it will have taken over 400 basis points of rate hikes, and we could certainly see a recession in 2023 as a result, but I think we'll have a "mission accomplished" moment sooner than many expect.
2. We'll see the federal funds rate decline
As of mid-December 2022, futures markets are pricing in a federal funds rate that is 25 basis points higher at the end of 2023. But I predict that as the Fed starts to get inflation under control, we'll see a lot of weakness in the economy and the Fed will start making rate cuts faster than the market expects.
3. The stock market will have a strong 2023
This goes along with the first two predictions. Keep in mind that the stock market is forward-looking. It had a terrible 2022 not necessarily because of what happened in 2022, but because it anticipates a recession, long-lasting high interest rates, and inflation. If the Fed can get inflation under control and starts lowering rates soon after, the stock market could have an excellent 2023.
4. Crypto will continue to be weak
It took longer than it did with most other speculative investments, but cryptocurrencies seem to have fallen out of favor with investors in recent months. And the FTX collapse certainly didn't help increase the public's confidence. I could see the leading cryptocurrencies having another rough year in 2023.
5. Mortgage rates will be below 5% at the end of 2023
Mortgage rates are more than double what they were at the start of 2022, but it's important for investors to realize they aren't tied to any specific benchmark rate. There are some big catalysts that could lead to much lower mortgage rates at this time next year, such as a recession, a general lack of demand for loans, and the possibility of cooling inflation.
These are meant to be bold predictions
Keep in mind that these aren't meant to be extremely likely predictions. The mortgage rate and fed rate cut predictions are especially against the grain. But I do think that all five of these things have a greater chance of happening in 2023 than most investors think.
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Matthew Frankel, CFP® has positions in Zillow Group. The Motley Fool has positions in and recommends Bitcoin, Ethereum, Vanguard Index Funds-Vanguard Growth ETF, Vanguard Index Funds-Vanguard Value ETF, and Zillow Group. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
