After a strong start to the year in January stocks were a bit weak in February. For the month the S&P 500 (SPY) fell 2.6% and the tech-heavy NASDAQ (QQQ) fell 1.1%.
That weakness wasn’t driven by a major shift in sentiment – it was driven by the same lingering issues markets have been battling for the last year.
Inflation remains stubbornly high: The U.S. has made progress on inflation, but recent economic data shows that it remains stubbornly high. This is fueling concerns that the Fed will be forced to raise interest rates a little more than expected.
A potential recession: Economists are still predicting a recession in 2023, but now most are predicting it will happen in the second half of the year. Either way, the threat of slower economic growth is a headwind for stocks.
Slow earnings growth: Corporate earnings is the #1 thing that effects a share price. And due to slower projected economic growth this year, the S&P 500 isn’t expected to see much earnings growth in 2023.
Stocks are Still up in 2023
Despite the weakness in February stocks are still up in 2023. For the year, the S&P 500 is up 3% and the NASDAQ is up 10%.
What Should We Expect Moving Forward?
Beyond the challenges listed above things are actually looking up for stocks. History shows that stocks frequently rebound after a down year like 2022. Here is one of the studies I’ve been sharing from yahoo finance.
If there is anything to hang your hat on during the current bear market in stocks, it’s that longer term markets tend to rebound very nicely.
The S&P 500 has been higher three years later in eight out of nine cases in which the index has fallen 20% or more from an all-time high going back to 1957, according to research from Trust co-chief investment officer Keith Lerner. Stocks have returned on average 29% during those eight cases.
Interestingly, stocks have also sharply regained ground a year after falling 20% or more from a high. Lerner’s data shows the S&P 500 has increased 15% on average in the seven times stocks have tanked 20% or more from a high dating back to 1957.
Here’s another reason to be optimistic.
The strong January is an indicator that stocks have a high probability of more gains in 2023. Here are more details from CNBC.
“Since World War II, if the market is up in January, it has continued to rise in the remaining 11 months of the year more than 85% of the time and average gain is about 11.5 %,” said Sam Stovall, chief market strategist at CFRA. ” So the old saying, ‘as goes January, so goes the year,’ popularized by the Stock Trader’s Almanac, is a true one.”
So despite some weakness in February I see a high probability that stocks are set for more gains in 2023. I’ll be back with another update next week – have a great day!
Disclaimer: This is not investment advice. This report is for entertainment purposes only. Every investor should consult with an investment advisor before making investment decisions. The Vodicka Group, Inc. is not a broker/dealer. We do not receive compensation for mentioning stocks. At various times, the clients, publishers and employees of Vodicka Group, Inc., may buy or sell the securities discussed for purposes of investment or trading.