Where is the Stock Market Headed?
Of course the answer isn't as simple as the question, especially when time frames come into play.
Long term? UP
Throughout the history of mankind the stock market is in an uptrend. It may not go up every year. And it sometimes takes a decade to reclaim previous highs. But eventually it does and then continues to move higher.
Short Term? It's not as cut and dry
We went from easy money to hard money, from zero percent interest rate policy to 'we are going to hike the economy into a recession' in the span of a little over a year.
40+ years of downtrending interest rates, followed by the most massive spike in interest rates, % wise, in history.
And yet the stock market hasn't 'crashed'. Perhaps it will down the road. No one knows for certain. However the smartest person in the room, the stock market, seems content with prices where they are, perhaps even higher later this year, despite the fact that money has become a lot more expensive to borrow.
I think that tells you something.
When you see people comparing today to 2000, or even 2008, it remains a different ball game.
We have an economy with a lot of debt funded at a lot lower interest rates. Even if house prices fall 10% or more, we have mortgages financed at 2.75%- 4% which makes current house payments in 6.25% 30 year more bearable.
There remains so many reasons for this stock market to fall. You could argue prospects for market gains are dim, if you look at the most bullish reason for the stock market since 2009 becoming the most bearish one. The FED.
From 2009 to Early 2022 the FED had the markets back. Easy money was the cure all for stock market ills.
The last year and a half, the FED has taken away the pacifier. The market has been crying. It's upset. And yet its starting to finally walk on its own?
You can't say 2023 is like 2008/2009. Anyone trading back then remembers a much more bleak outlook. We had Bear Stearns go under early in 2008. Then the housing market roll over taking down a host of lenders with Fannie and Freddie succumbing in the summer of 2008. A few weeks later Lehman went under. That was September 2008. A Sunday evening. Futures limit down, gold limit up.
And the market wouldn't bottom for ANOTHER 6 MONTHS! Stocks dropped another 40% from there!
Aside from interest rates soaring. Have we seen any big financial firms blow up? Forced liquidations? Hedge funds closing shop? Huge bets blow up firms? Are there any talks of bailing out industries? Emergency votes on 4 letter financing packages for ailing industries? TARP TALF?
Are we looking to nationalize industries? Rescue troubled manufactures like we did for GM?
Perhaps this is what lies down the road. Right now. I don't see it. Do you?
The selling in 2008/2009 that brought the stock market down, a lot of it was forced. Are we seeing that today?
While it's tough to look at this stock market from a bullish perspective with earnings reports missing and interest rates high. I think it also helps to look at it from a 2008/2009 perspective. Is today anything close to what we saw then? Hell no! Will it eventually be? I'm not so sure.
What if the worse has already passed?
I think that is a great question.
If the rate hike cycle is nearing an end. And the economy doesn't hit stall speed and rapidly descend into a chasm. Stock prices have a lot of room to go... higher.
What? Higher? Listen.... I didn't believe all the talk of GREEN SHOOTS in Spring of 2009. And yet.... those green shoots helped grow one of the greatest bull markets on our lifetime.
in March 2020 with a Pandemic shutting down the WORLD and global trade for months... it sure didn't look like a good time to be buying stocks... right? And yet... the stock market embarked on a historic rally from the March 2020 lows.
It's tough to envision any type of rally in 2023. The NASDAQ is already up 13% on the year. We have over 10 months left. What is the gain/loss for the market going to look like at the end of the year. Probably not what a lot of people are expecting. Thats for sure.