This will be the stock market year 2023… maybe!

The shares of 'disruptive' companies such as Peloton (a disruptive manufacturer of…home trainers), Carvana (a disruptive broker of used cars), Beyond Meat (a disruptive sausage company), Tesla and many others have in some cases corrected by more than 90% from their highs. The epic collapse of various cryptocurrencies and crypto exchanges should also not be forgotten. Even the leading currency Bitcoin has plummeted by 75% and has been bobbing along for weeks. Well, 'have fun staying poor!' is all I can say (this was the typical response from crypto disciples on social media when their euphoria was not shared). You shouldn't confuse a speculative bubble with intelligence. That reminds me: My brother-in-law hasn't talked about his fantastic investments for a long time… Why?

Once again, it has become clear that only at low tide does it become obvious who is swimming without swimming trunks. And quite a few market players were obviously in the water without their clothes on – and now the unsightly sight is revealed. Returns that could only be achieved thanks to leverage, i.e. the generous use of ultra-cheap loans, melted away as quickly as snow in the hot winter of 2022/23 with the central banks' interest rate hikes. And certain companies did not even manage to operate profitably before the rise in interest rates. That is truly an achievement.

Now, however, investors are suddenly insisting on hard profits and dividends again. They no longer want to be fobbed off with grandiose promises of a glorious future. That's a good thing! As liquidity dries up, more and more companies without a sensible business model are likely to come under pressure and many of these companies that have been celebrated for so long will soon go under. Even better!

But it wasn't just the gamblers and the lucky ones who suffered: Shares in rock-solid companies such as Roche and Amazon also took a beating. And even boring government bonds caused stock market players painful losses. After adjusting for inflation, hardly any investors made a profit on the stock market. 2022 was a year that caused assets around the globe to shrink dramatically.

Will the new year be better for equity investors? What will the stock market do in 2023?

If you are expecting me to make a precise stock market forecast and, ideally, a spot-on prediction for the Swiss Market Index (SMI), the DAX or the S&P500, then I have to disappoint you. Because, as you know, there are two types of forecasters: those who know nothing and those who don't know that they know nothing. After all, I am aware of my inadequacy and am not fooling you. I can't predict the future. But neither can the smartly dressed bank analyst with a middle parting and fashionable horn-rimmed glasses – he simply can't do it at a higher level.
Nevertheless, my gut feeling is that the outlook for the stock markets is not so bad. Sure, the brutal war in Ukraine could well get worse and who knows what could go wrong between China, Taiwan and the USA. But these conflicts are no longer a secret. But what if the war can be ended? What if China comes to its senses? The country has already taken a big step forward by abandoning its unspeakable zero Covid policy. As the economy in the USA and Europe is currently stuttering, an unexpected boost to growth from Asia comes at just the right time.

Inflation is also finally pointing in the right direction again. Are we betting that central bankers will soon abandon their tough tightening policy? In addition, equity valuations have eased noticeably following the correction. Of course, not all stock markets are really cheap. Nevertheless, I am happy about the lower purchase prices and am buying into some solid quality companies with pricing power. If I listen to the market, everyone is expecting a recession this year and the whole world is pessimistic – funnily enough, the very people who, at the peak a year ago, were still describing equities as having no alternative.

But beware: despite my slightly positive forecast, I do not presume to know the future course of the stock markets. The year 2022, which was full of negative surprises, has taught us that a healthy dose of humility can do no harm when investing. This also includes appropriate diversification so as not to jeopardize long-term wealth accumulation through reckless bets.

With this in mind: break a leg in the stock market year 2023!

Yours, Mark Stock©

Mark Stock is a member of the Point Capital editorial team. 'I am a stock market enthusiast and am passionate about economic history. I have been following the ups and downs of the markets for years and, of course, invest myself – preferably in shares. So my name says it all. Every month, I take up what I consider to be an exciting topic. And since the focus is on the content and not on me personally, I write under a pseudonym.'