However, as we discussed recently, there is a wide range of outcomes for 2023 based on your views and expectations.
"In 2023, the math of valuations suggests returns will likely be challenging as markets remain difficult to navigate.
Estimating price targets for the next full trading year is an exercise in futility. Too many variables, from politics to economics to monetary and fiscal policies, can impact market outcomes. However, we can build some ranges based on current valuations when estimating possible and probable returns for the following year."
In that article, we used historical valuation levels to estimate both "recession" and "no recession," potential outcomes assuming current forward estimates are correct. History suggests estimates remain overly optimistic, particularly if the economy does slip into a recession in 2023.
As we concluded:
Here is our concern with the bullish scenario. It entirely depends on a "no recession" outcome, and the Fed must reverse its monetary tightening. The issue with that view is that IF the economy does indeed have a soft landing, there is no reason for the Federal Reserve to reverse reducing its balance sheet or lower interest rates."
The biggest problem for investors is the bull market itself.
When the "bull is running," we believe we are more intelligent and better than we are. We take on substantially more risk than we realize as we continue to chase market returns and allow "greed" to displace our rational logic. As with gambling, success breeds overconfidence as the rising tide disguises our investment mistakes.
Unfortunately, during the subsequent completion of the full-market cycle, our errors return to haunt us. Always too painful and tragic as the loss of capital exceeds our capability to "hold on for the long-term."
No comments:
Post a Comment