Breaking News
Get 40% Off 0
👀 Reveal Warren Buffett's stock picks that are beating the S&P 500 by +174.3% Get 40% Off

3 Possible Scenarios for the U.S. Stock Market in 2023

By Tim KnightStock MarketsAug 17, 2023 02:58AM ET
www.investing.com/analysis/3-possible-scenarios-for-the-us-stock-market-in-2023-200641027
3 Possible Scenarios for the U.S. Stock Market in 2023
By Tim Knight   |  Aug 17, 2023 02:58AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
DJI
+0.16%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
T
+0.35%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
FDX
-0.66%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
MMM
-0.50%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
QQQ
+1.54%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CLX
-0.97%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

The past year has left many bears doubting themselves. The bear impulse arguably peaked in June 2022, more than a year ago. It makes sense from a macroeconomic perspective because that’s also when inflation’s velocity peaked.

The preponderance of evidence still favors the bears, though. The rally in mega-cap tech stocks brought them back in line with the rest of the market. Away from tech, income-oriented dividend stocks and ETFs are turning negative in 2023, yet many have still outperformed Invesco QQQ Trust (NASDAQ:QQQ) since the top in late 2021.

The Dow Jones Industrial Average has gained less than 5% this year. All of this is consistent with rising bond yields. I could go into all the negative economic data coming out of China, Germany, and so on, but I don’t need it. Higher rates alone will trigger a major bear market.

Psychology plays a huge role in market moves. Still, investors and, more so, investment managers do make rational allocation decisions. For every increase in yields, U.S. treasury bonds become more attractive relative to stocks. A bear market will follow higher interest rates because money will flow from stocks to bonds. 

There are three main scenarios ahead:

1. The bears are wrong

Goldilocks is coming back. Tech’s bull run isn’t over. Perhaps the price inflation was caused by the lockdowns, and prices will fall back to 2019 levels. Long-term interest rates are going back below 2%, perhaps the 10-year is going to zero if the bond bull isn’t over. Maybe a combination of AI, onshoring, and low inflation will unleash a new boom era in the USA. 

2. A smaller bear than in 2000 or 2008

Maybe all that happens is a retest of last year’s lows, making for around 3 years of sideways trading. In this case, I expect emerging markets and energy, as two examples, will not make new lows. They would become bull market leaders in a new higher-inflation boom period. An echo of the 2000s. 

3. This is a once-a-century bear market

Stocks, houses, and financial assets have exploded in price over the past 40 years. At higher interest rates, they will implode. Based on current interest rates, houses will be as affordable as they were in 2019 if they drop 20 to 30% in price. If interest rates go higher, it triggers a recession. If interest rates and inflation go higher, then wages will explode higher as younger workers revolt. 

There are a lot of moving pieces in the economy, but they filter down into asset prices. Where’s the best place to look for a signal? One area is the widow and orphan stocks of 2023. Stocks such as Verizon (NYSE:VZ). Verizon $VZ is a high-yield stock (paying 7.61% today) favored by many income investors.

It behaves like a utility stock, but both it and AT&T (NYSE:T) have performed worse the past couple of years because their yields are higher than in the utilities sector. They have been pulled lower by rising rates because U.S. treasury bonds offer much better yields. In May 2020, Verizon yielded 4.2%. Today, the 10-year Treasury yields 4.2%.

Verizon Inc Chart
Verizon Inc Chart

Verizon is also one of many stocks such as Clorox (NYSE:CLX), 3M Company (NYSE:MMM), Nike (NYSE:NKE), FedEx (NYSE:FDX) and Pfizer (NYSE:PFE) that are near, below or bounced off 40+ year supporting trendlines. Verizon has also bounced off its 200-month moving average. Only in October 2008 was the 200-month meaningfully broken, and Verizon has never trended below it. 

AT&T Stock Chart
AT&T Stock Chart

Three scenarios, assuming there isn’t single-stock risk or sector risk (the lead phone cable story appears to be mostly BS.) 

  1. Bull: Verizon bounces soon or soon after, making a slightly lower low.
  2. Minor bear: Verizon bounces around $28 per share and a 9% yield; it probably makes a low before the broader market because bond yields start falling fast. 
  3. Major bear: Verizon breaks $28 and heads towards $20 or prices below. If there’s no single-stock reason for a plunge in Verizon, major blue chip stocks also break support lines and moving averages that have held for the past 20 to 40 years.
3 Possible Scenarios for the U.S. Stock Market in 2023
 

Related Articles

3 Possible Scenarios for the U.S. Stock Market in 2023

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
tahir Khan
tahir Khan Dec 02, 2023 2:54PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Tahir khan
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email