As the saying goes when it comes to the stock market, "so goes January, so goes the year".
According to the Stock Trader's Almanac, this belief seems to have some statistical significance, as January's performance has aligned with the rest of the year's performance about 75% of the time since 1900.
While it is still too early to draw conclusions about how the stock market will perform in 2023, the early returns for January have not been particularly positive. The Dow Jones, S&P500, and Nasdaq have all seen losses in the first few days of the month.
In uncertain times like today and as counterintuitive as it sounds, a positive economic news can sometimes be seen as a negative for the stock market.
For example, the recent release of data showing an increase in private payrolls and a decrease in weekly jobless claims could be seen as negative for Wall Street because it signals that the Federal Reserve is likely to continue raising interest rates.
One might assume that good news for the economy is good news for the stock market, but it’s never simply black on white with financial institutions.
Recently, the money supply growth rate went negative for the first time in 33 years, indicating a contraction in the money supply.
This is usually a worrying sign, as periods of economic boom are typically accompanied by rapid growth in the money supply, while recessions are often preceded by slowing or contracting money supply growth.
If a recession is on the horizon, it could be good news for the stock market, as investors may flee to stocks as a safe haven asset.
Take a look at this chart pictured below to witness the unhealthy rise of the money supply in America, during and following the COVID crisis:
As you can see, the number of dollars in circulation has exploded in the last few years. In fact, more than 80% of all dollars to ever exist have been printed since just 2020 alone.
Once again, and to emphasize: Not only has money supply growth diminished, it has slipped into actual reverse.
Ryan McMaken of the libertarian Mises Institute says:
“That is generally a red flag for economic growth and employment. It also serves as just one more indicator that the so-called “soft landing” promised by the Federal Reserve is unlikely to ever be a reality.”
We are compelled to agree. Any “soft landing” promised by the Federal Reserve is unlikely to ever occur.
Overall, it remains to be seen how the stock market will fare in 2023. The performance in January may give us some indication, but it is not a sure thing.
We expect that the gathering recession will settle in during 2023’s first quarter, the second quarter at the very latest.
We forecast the Fed will start lowering interest rates for May, no later than June which will help the stock market recover at the end of the year, even if perhaps January ends in red.
To conclude our forecasts, the Dow Jones will close the year above 36,000. The S&P will close the year above 4,300 and the Nasdaq will close the year above 15,000.
Bitcoin will end the year somewhere between $30 000 and $60,000, oil will end 2023 above $125 and Gold near $2,200.
Stay alert, stay informed.
Wave Cap
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