In this episode of Coffee with Brendan, Brendan shares LPL’s 2023 Market Forecast—along with a healthy dose of skepticism and an analysis of how last year’s expert forecasts compared to reality.
As mentioned in this video, below is LPL Research’s Outlook 2023: Finding Balance. This is your guide to the economy & the markets and how they may impact you in the coming year. We’ve also included the 2022 Outlook for comparison.
2022 market performance overview
Last year’s expert forecasts
LPL’s forecast for 2023
Hi, and welcome to another edition of Coffee with Brendan. Today's episode is going to be a 2023 market prediction. So that's the clickbait part of this. The not-so-clickbait part of it is I'm probably not going to give you a very good answer to that question. Reason being is that it's very, very difficult to do. And I'm actually going to show you how many experts in the field, people that study this day in and day out, have many more advanced degrees than I do and literally studied this 24/7 and got it so wrong in 2022.
So I, you know, when clients asked me that question, you know, I kind of chuckle and, you know, talk about what I think could potentially happen. But I always add a caveat to that simply simply simply saying that you never know what that next thing is going to be, that's going to throw the market off. So as we're sitting here, January of 2022, we had no idea that inflation was going to be as sticky as that as soon as we had no idea that Russia would invade Ukraine, we had no idea that China was going to stick to their zero COVID policy and continue to tie up the supply chain in the United States. And as a result, the market dropped about 18% in 2022
So let's share some pictures. And we can kind of take a look at the tail of the tape. So this is pretty much what the market did. It started the year off really nicely, you know, 46 4700, but then, you know, had its fits and spurts came back a little bit at the right around March of last year, then bottomed out in June came back in July bottomed out again in September, November, went up again, and then kind of petered out at the end of 2022, ending at about 38 to 3900. So not a good year for the market. And they said about an 18% loss.
So let's take a look at how some of the experts thought things were going to turn out. So let's turn our attention to our friends at LPL. And please don't take this as me beating up on LPL. I'm just showing you what I showed you already. Probably about a year ago, they do release a forecast of what the following year is going to look like. And this is what they came up with last year. So the market remember finished in the 3800s. They were actually predicting a positive year somewhere between 5050 100. Of course, you know, what they what they have here is, you know, based on, you know, economic forecasts may not develop as predicted. And then obviously, they're talking about earnings per share, and that's where they come up with their number.
So moving forward to 2000. Well, let me before I get into that, let's take a look at some of the other folks that are also making predictions so that again, I don't come off as looking like I'm beating up on LPL. So if we go back to this chart here, let's take a look at how some of the other big financial firms performed. Say at Oppenheimer, looking at a 5300 5300 level of the s&p 500. Mellon 5300 Deutsche Bank Credit Suisse, Goldman Sachs JP Morgan, RBC, Citi, Citi Group, UBS, Cantor Fitzgerald, Barclays Wells Fargo Bank of America Morgan Stanley, so all of these guys, all the big banks, no one came close to that 3800. They certainly did a little bit better than LPL did, to be blunt about it, but at the end of the day, many of them and all the ones that I'm showing on this chart here, vastly under vastly overestimated how well the s&p 500 would do.
And, you know, I know there's a lot of cynicism out there about the Fed. But even the Fed, you know, one of the worst things that Chairman Powell ever said was that this high inflation rate that we had, that we suffered through all in 2022 was temporary and will wane and there are one of the things that a lot of people are pointing to it Is that the Fed was was was broadcasting from the rooftops that inflation was not here to stay. And that it was actually they coined a term which you know is going to haunt Jerome Powell for the rest of his life called transitory. So they, you know, that was a really big miss on that front.
So, long story short, the smartest guys in the room all got this very, very wrong. And again, these guys are at their job, that's their only job is to watch the markets and know better than the average investor. And as we saw, you know, many of them under underperformed on that.
So let's turn our attention to what LPL is looking at for this year, now they've given themselves a little bit more wiggle room here, and they're actually painting three different scenarios. So they have a bear case where inflation remains high inflation or interest rates stay high, the Federal Reserve continues to tighten, in other words, continues to raise interest rates. Long story short, they're looking at a drop in the market, if that were to be the case, but they're only given about that, that about a 15% chance with their base case, you know, what they're thinking with 60% Confidence is that the market actually goes up to 4320. And then they're also putting out there 25% case that we do have that soft landing, that interest rates fall faster than expected. And ultimately, we end up at that 5100 mark that they had forecast in 2022. If you were to take everything into consideration, we're looking at a target of about 4400 to 4500. So again, take that with a grain of salt, that is what LPL you know, in don't get me wrong, they put a lot of work into this. And they're not just coming up with numbers just to, you know, make give some content to their, to their website, they have a lot of very smart people working on that. And that's what they've come up with. If you want the full report, it's about a 10-page report on all the things that went into this, feel free to let me know, I'll attach a link to this newsletter. And you can download it, it is a client-friendly piece, and then you can see where their heads are at.
So again, I wish I could give you a better answer, then I don't know your guess is as good as mine. You know, but historically speaking, as we know, the market has always come back this is I'm not sticking my neck out at all on that one. It's historical data. The market historically has always come back from the worst times. The question is when so again, I can't promise that this time will be like every other time. But there is historical precedent to say that the market will come back. It's just a function of will come back in 2023/2024 or sometime later.
So that's what I got for you today. If you have any questions after reading through some of the information on the attachment, please let me know I am more than happy to discuss this in more detail. Have a great day.
Brendan is the Managing Director for Waymark Wealth Management. He has extensive experience in comprehensive wealth management. His focus includes retirement planning, behavioral finance, investment portfolio construction, education funding, insurance & risk management, taxes, charitable giving, and estate planning. Brendan has an ability to take clients' complex visions and distill them down to simple action plans, helping them move from where they are today to where they want to be tomorrow.
The opinions, statements and forecasts presented herein are general information only and are not intended to provide specific investment advice or recommendations for any individual. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. There is no assurance that the strategies or techniques discussed are suitable for all investors or will be successful. To determine which investment(s) may be appropriate for you, please consult your financial professional prior to investing. Any forward-looking statements including the economic forecasts herein may not develop as predicted and are subject to change based on future market and other conditions. All performance referenced is historical and is no guarantee of future results
Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments. There is no guarantee that a diversified portfolio will enhance overall returns or outperform a nondiversified portfolio. Diversification does not protect against market risk. Investing in foreign and emerging markets debt or securities involves special additional risks. These risks include, but are not limited to, currency risk, geopolitical risk, and risk associated with varying accounting standards. Investing in emerging markets may accentuate these risks.
The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents in specific states which are listed on our website at www.waymarkwealth.com