Below are the newest 2023 Wall Street S&P 500 forecasts. The S&P 500 price targets range from 3,675 to 4,500. This implies returns of between -4.6% and +16.8% from the Dec 16, 2022 close of 3,852.
The key risks to the S&P 500's performance include earnings cuts and valuation compression. If these two things were to happen, the S&P 500 could easily decline by 10% or more from current levels.
The S&P 500 could also see greater-than-expected earnings cuts and a valuation increase. This would occur if the market looks beyond the earnings cuts and expects better times ahead. The Fed could also pivot sooner-than-expected, thereby reigniting the bull market.
Personally, I believe the worst of the bear market was over when the S&P 500 hit 3,577 in October 2022. What matters most is what the Fed plans to do with interest rates. Come 1Q 2023, I think the Fed will have to pause its hikes and start cutting by the end of 2023. Sadly, Jerome Powell is now talking about a 5.125% terminal Fed Funds rate, which is way too high.
As Asana billionaire CEO Dustin Moskowitz wisely quipped, “I'm CEO of the Asana company, but lately, Jay Powell has been CEO of the stock price.” Sadly, this scenario will likely continue to be true for the next 12 months.
A Recession In 2023 Is Almost A Certainty
With the yield curve the most inverted since 1981, the U.S. economy will most likely go back into a recession in 2023 (90% chance IMO). Take a look at the chart below. It shows how a recession has always followed an inverted yield curve since 1970.
The inversion is causing me to invest 60%+ of my cash and cash flow into one-year Treasuries yielding 4.7%+. A 4.7% guaranteed return on the S&P 500 would bring the index to 4,033, excluding dividends.
4,033 is in the middle of the various 2023 Wall Street S&P 500 price targets (3,675 – 4,500). Therefore, it makes sense for me to invest some of my new funds earmarked toward stocks and bonds into one-year Treasury bonds. When investing, please learn to think in percentages.
Again, I’m a middle-aged man with two kids, a mortgage, a stay-at-home spouse, and no job. I can’t afford to take too much risk. Otherwise, I’d end up employed!
2023 Wall Street Forecasts Of The S&P 500
Here are 20 Wall Street S&P 500 forecasts for 2023 segmented by Bearish, Neutral, Positive, and Bullish. These target price forecasts will be updated over time, so bookmark this page or subscribe to my free weekly newsletter.
Don't forget to participate in the one-question survey below on where you think the S&P 500 will go in 2023. Let's see if you got what it takes to be a good Wall Street strategist!
Bearish 2023 S&P 500 Forecasts
- Barclays: 3,675, $210 EPS (as of Nov. 21, 2022) “We acknowledge some upside risks to our scenario analysis given post-peak inflation, strong consumer balance sheets and a resilient labor market. However, current multiples are baking in a sharp moderation in inflation and ultimately a soft landing, which we continue to believe is a low probability event.“
- Societe Generale: 3,800 (as of Nov. 30) “Bearish but not as bearish as 2022 as the returns profile should be much better in 2023 as Fed hiking nears an end for this cycle. Our ‘hard soft-landing’ scenario sees EPS growth rebounding to 0% in 2023. We expect the index to trade in a wide range as we see negative profit growth in 1H23, a Fed pivot in June 2023, China re-opening in 3Q23 and a US recession in 1Q24.”
- Capital Economics: 3,800 (as of Oct. 28) “We expect global economic growth to disappoint and the world to slip into a recession, resulting in more pain for global equities and corporate bonds. But we don’t anticipate a particularly prolonged downturn from here: by mid-2023 or so the worst may be behind us and risky assets could, in our view, start to rally again on a more sustained basis.“ I’ve personally never heard of these guys before.
- Morgan Stanley: 3,900, $195 EPS (as of Nov. 14) “This leaves us 16% below consensus on '23 EPS in our base case and down 11% from a year-over-year growth standpoint. After what's left of this current tactical rally, we see the S&P 500 discounting the '23 earnings risk sometime in Q123 via a ~3,000-3,300 price trough. We think this occurs in advance of the eventual trough in EPS, which is typical for earnings recessions.“
- UBS: 3,900, $198 EPS (as of Nov. 8) “With UBS economists forecasting a US recession for Q2-Q4 2023, the setup for 2023 is essentially a race between easing inflation and financial conditions versus the coming hit to growth+earnings. History shows that growth and earnings continue to deteriorate into market troughs before financial conditions ease materially.“
- Citi: 3,900, $215 EPS (as of Nov. 18) “ Implicit in our view is that multiples tend to expand coming out of recessions as EPS in the denominator continues to fall while the market begins pricing in recovery on the other side. Part of this multiple expansion, however, has a rates connection. The monetary policy impulse to lower rates lifts multiples as the economy works its way out of the depths of recession.“
- BlackRock: 3,930, $231 EPS (as of Dec 17), 0.0% real GDP growth 2023, 2.9% Core PCE Inflation 2023, Overweight Energy Services, Healthcare Providers, Infrastructure, Underweight Consumer Discretionary
Neutral 2023 S&P 500 Forecasts
- BofA: 4,000, $200 EPS (as of Nov. 28) “But there is a lot of variability here. Our bull case, 4600, is based on our Sell Side Indicator being as close to a ‘Buy’ signal as it was in prior market bottoms – Wall Street is bearish, which is bullish. Our bear case from stressing our signals yields 3000.“
- Goldman Sachs: 4,000, $224 EPS (as of Nov. 21) “The performance of US stocks in 2022 was all about a painful valuation de-rating but the equity story for 2023 will be about the lack of EPS growth. Zero earnings growth will match zero appreciation in the S&P 500.“ My old shop where I used to work in NYC. I’ve never seen the S&P 500 change exactly based on earnings changes.
- HSBC: 4,000, $225 EPS (as of Oct. 4) “…we think valuation headwinds will persist well into 2023, and most downside in the coming months will come from slowing profitability.“
- Credit Suisse: 4,050, $230 EPS (as of Oct. 3) “2023: A Year of Weak, Non-Recessionary Growth and Falling Inflation.” My other old shop that has been going through some terrible times lately due to massive risk management mistakes. People have fled CS as management tries to retain talent but also sell off its investment bank. It looks like a Saudi royal prince is interested in investing in CS.
- RBC: 4,100, $199 EPS (as of Nov. 30) “We think the path to 4,100 is likely to be a choppy one in 2023, with a potential retest of the October lows early in the year as earnings forecasts are cut, Fed policy gets closer to a transition (stocks tend to fall ahead of final cuts), and investors digest the onset of a challenging economy.“
Positive 2023 S&P 500 Forecasts
- JPMorgan: 4,200, $205 (as of Dec. 1) “…we expect market volatility to remain elevated (VIX averaging ~25) with another round of declines in equities, especially after the run-up into year-end that we have been calling for and the S&P 500 multiple approaching 20x. More precisely, in 1H23 we expect S&P 500 to re-test this year’s lows as the Fed overtightens into weaker fundamentals. This sell-off combined with disinflation, rising unemployment, and declining corporate sentiment should be enough for the Fed to start signaling a pivot, subsequently driving an asset recovery, and pushing S&P 500 to 4,200 by year-end 2023.“
- Jefferies: 4,200 (as of Nov. 11) “In 2023, we expect bond markets will be probing for the Fed’s terminal rate while equity markets will be in ‘no man’s land’ with earnings still falling as growth and margins disappoint.“
- BMO: 4,300, $220 EPS (as of Nov. 30) “We still expect a December S&P 500 rally even if stocks do not hit our 4,300 2022 year-end target. Unfortunately, we believe it will be difficult for stocks to finish 2023 much higher than current and anticipated levels given the ongoing tug of war between Fed messaging and market expectations.“
- Nuveen: 4,300, $205 EPS, 1.0% 2023 GDP Growth, 3.0% 2023 Core PCE Inflation, OW Materials, Technology, UW Consumer Discretionary
Bullish 2023 S&P 500 Forecasts
- Oppenheimer: 4,400, $230 (as of Dec 12) “Our earnings projection of $230 for the S&P 500 calls for a P/E multiple of 19X with near flat earnings growth in 2023.”
- Wells Fargo: 4,300 to 4,500 (as of Aug. 30) “ Our single and consistent message since early 2022 has been to play defense in portfolios, which practically means making patience and quality the daily watchwords. Holding tightly to those words implies that long-term investors, in particular, can use patience to turn time potentially to an advantage. As we await an eventual economic recovery, the long-term investor can use available cash to add incrementally and in a disciplined way to the portfolio.”
- Deutsche Bank: 4,500, $195 EPS (as of Nov. 28) “Equity markets are projected to move higher in the near term, plunge as the US recession hits and then recover fairly quickly. We see the S&P 500 at 4500 in the first half, down more than 25% in Q3, and back to 4500 by year end 2023.“
- CFRA Research: 4,575, (as of Dec 12) “After enduring a challenging first half as the economy finally succumbs to the long anticipated, but mild, recession.”
- Leuthold Group: 5,000, $220 EPS (As of Dec 8, 2022) Jim Paulsen, chief investment strategist says “the lows are in” as he sees the start of a new bull market over the next 12 months. He says valuations should increase as the first-year of a bull market often has some of the biggest gains.
Large Dispersion In 2023 S&P 500 Forecasts
As you can see from the various 2023 S&P 500 price targets, Wall Street strategists are all over the place. The average 2023 S&P 500 forecast is 4,009 according to a Bloomberg survey. A Reuter's poll of 41 Wall Street strategists shows a median S&P 500 price target of 4,200.
I would love to believe Deutsche Bank's 4,500 S&P 500 price target for 2023. If we do indeed get to 4,500 in 1H 2023, I will likely reduce my public equity exposure from 30% to 20% of my net worth. It will feel like a win to claw back most of the losses from 2022.
But I feel like the S&P 500 is going to be range-bound between 3,800 – 4,250. The reasons include: earnings declines, a stubborn Fed that wants to see millions unemployed, a recession, and skepticism about valuations. With the Fed still driving a bus with its engine on fire, it's hard to know how much to pay for stocks.
Better To Focus On Making Money Elsewhere
Due to potentially lackluster returns in the S&P 500 in 2023, it is best to lower our expectations. This way, we'll feel less frustrated the next time some exogenous variable causes stocks to sell off again.
Instead of focusing on stock market returns, I'd focus on solidifying and boosting your cash flow. Cash flow is what funds your lifestyle. Net worth is just an arbitrary vanity metric that changes by the day.
Luckily, an aggressive Fed makes increasing passive income easier. The clearest examples of this being true are being able to earn 4.6% on an 18-month CD and 4.5%+ on a one-year Treasury bond. Just a year ago, you wouldn't be able to get over 1.5% for either. CIT Bank Platinum Savings account is also high yielding at 5.05% for balances $5k+.
For most people, the easiest way to make more money is through your day job. The faster you can get promoted, usually, the more you can get paid. At the very least, hold onto your job through the next recession. When the good times return, you'll better be able to benefit.
When the 2008 global crisis began I put my head down and worked as hard as I could. I was careful not to piss anybody off. Wall Street was going through multiple rounds of layoffs each year for three years.
The S&P 500 eventually bottomed in mid-2009. By 2012 I felt confident enough to negotiate a severance and do my own thing. Gaining back all the losses experienced in 2008-2009 felt like a huge win. Luckily, a long bull market ensued for ten years after I left.
Loading ...How I Plan To Invest In Stocks And Bonds In 2023
For now, here's how I plan to invest in stocks and bonds for 2023. My thoughts will most certainly change over the year as new data comes to light.
- Max out my tax-advantaged retirement accounts (SEP IRA, Solo 401(k)). Employees can contribute $22,500 pre-tax to their 401(k)s in 2023.
- Contribute the gift-tax limit maximum of $17,000 to each of my kids' 529 plans. Five years have passed since I first superfunded my son's 529 plan in 2017.
- Put the kids to work so they can earn at least $6,500 each to invest in their Roth IRAs. The biggest no-brainer for parents is to teach their kids work ethic and money management skills. The standard deduction limit for 2023 is $13,850.
- As long as I can get over 4% risk-free, I will be allocating ~60% of my cash flow to buying Treasury bonds.
- If the S&P 500 gets below 3,800 again, I will start allocating ~60% of my cash flow to buying the index, regardless of the one-year Treasury bond yield level.
In other words, no matter the various Wall Street forecasts, I will always take full advantage of tax-advantageous accounts. So should you. After a decade of consistently maxing out your 401(k), you will be surprised by how much you will have accumulated.
Mid-Year 2023 S&P 500 Forecast Update
As of December 4, 2023, the S&P 500 is up about 20% and the index is officially back to a bull market. As a result, a number of Wall Street strategists have upgraded their target prices.
Some of the upgrades include Goldman Sachs' David Kostin (to 4,500 from 4,000), BMO Capital Market's Brian Belski (to 4,550 from 4,300), BofA's Avita Subramanian (to 4,300 from 4,000) and RBC Capital Markets' Lori Calvasina (to 4,250 from 4,100).
One of the biggest holdouts is Mike Wilson from Morgan Stanley, who predicted we'd go to 3,000 at some point this year, and retains his 3,900 target price. His S&P 500 earnings forecast is $185, or 17% below consensus.
Here are the 2024 Wall Street target prices for the S&P 500. Even Morgan Stanley is more bullish now with a 4,500 target price.
The Desire To Take Things Easier In 2023
Continuing to generate more passive income is important to maintain our lifestyle. However, our investments are currently generating more than enough. Therefore, I'm not that motivated to earn more. Instead, I'm more motivated to spend down our wealth and take things easier.
I like to grind during good times because the Return On Effort (ROE) is much greater. During bad times it's more logical to kick back and enjoy your wealth if you can. The ROE is just not high enough to make working as hard worthwhile.
The more you can spend your money and relax during bad times the less bad things will feel!
Related: 2023 Housing Price Forecasts
Reader Questions And Recommendations
Readers, what is your 2023 S&P 500 forecast? Do you expect positive or negative stock market returns in 2023? Which Wall Street forecasts do you like the best and why?
Check out Empower, the best free tool to help you become a better investor. With Empower, you can track your investments, see your asset allocation, x-ray your portfolios for excessive fees, and more. Staying on top of your investments during volatile times is a must.
This holiday season, give the gift of financial education. Pick up a hard copy of Buy This, Not That, my instant Wall Street Journal bestseller. The book helps readers make more optimal investing decisions to build more wealth and live better lives.
Boost your personal finance knowledge by signing up for the free Financial Samurai newsletter and posts via e-mail. More than 60,000 have already. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.
Never make predictions. Especially about the future!
Why not? Sometimes, predictions come true. Thinking is free. And if you can make a fortune based on correct predictions, you can change your life for the better.
But of course, nobody can consistently predict the future with any accuracy. But I do know we will all eventually die, so we had best occasionally sell some stock to enjoy life too.
Hello,
I’ve been a long time reader for several years now but only commented a few times. I’ve got options on tech stocks and several semiconductor stocks (AMD and TSM) before the Nvidia explosion and all of them are riding high. I bought them last fall and earlier in the year on the upswing but they don’t expire until next January 2024. I’m ahead but I’m a greedy SOB and I just don’t want to close out the positions until this fall on the basis that there’s still room for those stocks to keep going, especially anything related to Nvidia. The cautious side of me is saying, “Take some of the profits now before it’s too late! Doom and gloom in around the corner!” Then the gambler in me is, “Keep riding it to the very end! It’s only money!”
Additionally, Congress and the President just agreed, in principle, to raise the debt ceiling and avoid a shutdown, at least for the next two years. Do you think the markets have already priced in the possible shutdown and we are looking good the rest of the way or is there a hint of a recession in the fall as everyone is predicting? What are your forecasts for these tech stocks, especially the semiconductor industry?
Thanks!
How much are you talking about?
Sam, how long below 3,800 would the S&P need to be for you to start allocating 60% back into it? Would it be a consistent few weeks at that level or a one-time drop there and such?
Immediately. I’m constantly dollar-cost averaging and have nibbled below 3,900 post the SVB bank run.
Powell is NOT the CEO of the stock market. It’s the trader’s who are driving prices down because they are influenced by massively wrong information from all corners. Everyone in the room is totally blind that a 5% hike in interest rates is close $1T in new net money in the economy and assuming a good chunk of that will be spent, that will keep corporate profits up in many sectors. Even the author if this article says he’s turning 60% of his portfolio into treasury bonds to gain 4%+ interest income. Regarding inflation, Powell just doesn’t have the tools to lower the price of oil, help get the supply chain all back to full production, or set regulations to reduce corporate price gouging. If the Fed would leave interest rates at zero and turn over the responsibility to Congress to use micro-focused fiscal policies, then we may get somewhere in reducing inflation. Has anyone asked the question if the extra $1T in new interest income to savers (mostly who really don’t need the money) might indeed increase inflation even higher? Powell is not the CEO of the stock market. Are the stock market traders being duped by neoliberal pundits and neoclassical orthodox economists? Never in history has raising rates helped fight inflation. Inflation is usually a supply-side problem.
The longer the inflation last, the more it’ll stay intrenched because American workers have been absorbing 9% inflation for the last 2 years, it’s unrealistic to expect them to continue indefinitely. I’m afraid the Fed would have to break the back of inflation in 2023, and take the equity market down if needed. Not doing this and trying to smooth out the ride will just prolong inflation and break the fragile truce between labors and capitalists. We’ve already seen massive quiet-quitting, it’s wishful thinking that labors will be content with their reduced purchase power indefinitely.
They say a cure to higher prices is higher prices. I expect CPI to come down to 5% by mid-year.
CPI need to cooperate and rescue the market though – If CPI remains elevated, due to tight service market, then the fund rate will simply stay elevated too, there’s no mandate for Fed to rescue the market, only employment and price stability. It’s an easy job for Fed if they turn a blind eye on S&P, which is what they should’ve been doing since 2018.
Taking a step back, Paul Volcker killed the inflation in the 80s and killed it so convincingly, people thought inflation would never return and we’ve been living on Volcker Dividends since for 2 decades, with zero or negative real interest rate for decades and no consequences, until now. The dividends are now gone completely, even if the labors cooperate and not demand wage increase, what will that world look like? Workers spend less for a few more years, which will mean economy is worse, or workers consume more by simply borrowing more, in a rising interest rate environment? I think the capitalist wishful thinking on CNBC is borderline delusional.
I’m with RBC on their forecast of 4100 and agree with their comments as well. I feel like things will be choppy in the 1H of the year but the market will start to look forward and price in the beginning of the recovery in 2024.
In January 2022 I pulled all of my wife’s (3) 401Ks out of equities and put them in Stable Value. I plan to put a good chunk of that in 1 year Treasury Bonds and move back into equities with those funds in early 2024. We are also maxing out her 401K, catchup, and HSA accounts and we are deferring half her income into a deferred savings plan that will pay out over a 10-year period after she retires. We are investing that money in equities so we can buy low for now and hopefully, see some nice long-term returns down the road. We also can buy up to $15K of my wife’s company stock which after 3 years the company will match dollar for dollar so basically a 100% return over a 3-year period, plus or minus the market return.
I am also funding our daughter’s Roth IRA and buying her $10K in iBonds. I am retired so I have no moves to make at this point for myself.
Hi Sam (and reader community), big fan of your writing here and awesome job with this piece as always! I’ve seen forecasts over the next decade which show low expected returns for equities, so was considering private companies as an option.
Was wondering if you had a writeup on VC/PE investing for laypeople – I believe I saw one from you, though may have been someone else, about LPs at top tier funds. Any resources you can recommend here in the realm of funds of funds, publicly-traded firms (e.g. Carlyle, Apollo, BX)?
And are you aware of any tools or sites to search private companies and find mutual funds holding them that can be invested in? Some Fidelity funds hold Space Ex, Epic Games, etc. This is super easy to do for public stocks – basically any site works, though recognize for private it’s a bit more challenging and ownership is not reported/tracked in the same ways. Alternatively, I was thinking maybe searching SEC Edgar filing documents for the private company name could work here?
Any advice from you or other readers would be awesome, thanks in advance!
Sam, long time reader here. To increase my financial literacy, I read a lot of financial blogs from various POVs. Yours seems to be the most helpful in terms of getting a broad understanding of various financing perspectives. The constant “to-do” and “not-to-do” lists are unbelievably helpful. The way you write makes me feel like I’m getting a heads up on financial information and also not overwhelmed by technicalities.
Not exactly a direct comment to this post, but not too far off topic either is my request for this:
How does one calculate market gains or losses for the year, as the averages of the S&P, NASDAQ, Dow Jones, and any other market conglomerate that I maybe overlooking, to compare to how their actively managed accounts faired for the year. The common refrain is that the large majority of these managed funds do not beat the market. But how would I want to calculate “the market” to really see if that is the case.
I hope my non-mathematical mind stated that clearly enough for you to consider. Anyhow, I love your new book and pop on here every weekend for coffee and peace of mind.
Thanks for all you do!
– STL Reader (Go Cards!)
Has anyone compared prior years projections to what actually happened in the market? I would love to see some sort of accuracy metric applied to these analysts and their projections. For example, BofA said SP500 would be X in 2021, but instead it was Y (which means it was Z% off). Do this across all banks going back 10 years and see who gets closest to the pin and is “most accurate”.
I haven’t done the comparison. But the reason why being a WS strategist or economist is one of the best jobs is there is no need to be right. No real skin in the game, especially due to compliance reasons. We can all change our predictions as times change.
Been following you for a couple of years. Thank you for opening my eyes to so much on the financial side of retirement. I look forward with great expectation for each of your letters. For your S & P 500 survey, as scary as it is – my ESP tells me we will see the complete failure of the stock market as we know it sooner than later.
I have just retired and have watched all I saved reduced to 50% of what it was in just these last few months. Praying I am wrong, but my ESP has proven correct many times. Sadly, my 91 year old father, whose JP Morgan investments have fallen so drastically – he just doesn’t have enough years left to wait for his stock to even begin to recover.
Keep up the great work. Many of us need your insight and guidance. Thank you so much.
Sam, I’m curious about how your readers’ stock market predictions have turned out when you’ve done surveys in the past. Did the majority’s predictions come true?
I just checked and I didn’t do a survey for 2022. But I did see Morgan Stanley, the lowest Wall Street estimate for 2022 S&P 500 was 4,400. I thought there was a 65% chance the S&P 500 would correct by 10% or more. But I didn’t expect a 25% decline and the Fed to hike so aggressively.
We’re only one major unexpected world event away from the markets reverting to mean. S&P 500 below 3000 in 2023.
Are you shorting the S&P 500? How are you playing your forecast?
I too think that all of the opinions above fail to really take the international pulse. I think the odds are high for Xi to invade Taiwan and thus take over much of the global chip trade (how better to unify the people at home?), and neither will make the WH or DOD happy. New Covid strain problems? New pandemics? The huge fuel problem for winter 2023 since Russia is continuing to restrict fuel flows (the problem was never going to be this winter)? The potential increased price of steel as ship builders build more ships to move LNG, build facilities to load, unload and distribute LNG and other fuels. Continuing shortages of chips for autos, supply chain bottlenecks, and who knows what N.Korea, Putin, and others are planning that will further disrupt world markets. I think there is waaay too much uncertainty to plan for a return to normal 10.5% for the S&P let alone a surge. This economic down turn is not the result of a bubble popping. It’s the result of global problems. I can see an S&P surge in 24 or 25. But I think 23 is premature. And that is without considering tantrums from the GOP (swearing to not raise the debt limit on money we already spent?!), Musk setting himself on fire, and countless other problems that are the result of mere bad decisions (like the Fed going way past where it should on interest rate hikes. Interest rate hikes take the market up to 24 months to fully absorb. As huge capital investment projects are delayed or canceled.) House sales and New Home Starts are both down a lot. That means next year fewer sales, and that means fewer new grills, TV’s and mattresses.
I don’t think one can underestimate what it means that there is now an alternative “safe” investment for cash that at least provides a decent return. From 2010-2021 stock market downside was limited because we had nowhere else to put our cash. Every pullback was a buying opp. Now the market is down 20% and we have the option to get risk-free 4.5-5% on our cash. That is a tremendous headwind for stocks in 2023. Until rates ease and start coming down, I see 4200ish as the ceiling.
However, and this is the huge one, these rates are temporary. I expect a mass move into stock as soon as Fed starts to ease, which I expect fall of 2023 as the recession peaks. In this scenario I see a setup for “don’t be the last one in” and major 2-3 month run-up in stocks into the year end. You can already see it happening with me and other folks on this board talking about dry powder – by mid 2023 I will be sitting on a ton of cash and I won’t want to leave it there. It makes me uneasy already.
I do remember 5-year CDs offering 4.25% – 4.5% in 2008-2010, so that was an option. I bought some myself, which in retrospect, was suboptimal given the bull market ended in 2009.
This time around, I’m being careful to manage the percent allocation split between stocks and bonds. Also, I’m careful to invest in various durations between 3-month to 3-years, so that I always have cash on hand to take advantage.
Nothing wrong with buying 3-month t-bills and reinvesting to another 3-months too. But I suspect we’ll look back and regret not buying more 3-10-year Treasury bonds yielding 4.3%-4.5%, a year from now for our low-risk/cash allocation.
Sam – Great post! Thank you for this helpful information. These forward looking strategic types of posts are my favorite. Keep up the good work!
Sigh I certainly do not want to go through another recession, but it wouldn’t surprise me if things get ugly next year. I’m going conservative with my investments this winter and will be taking things slow to see where the market goes next year. Expect the worst, hope for the best as they say.
Best line ever: “I can’t afford to take too much risk. Otherwise, I’d end up employed!” Haha
Ha! You caught that. It is kind of ironic. But that was my frank conclusion… just go back to work and make money. It’s the realistic option people who retire early face. If things don’t work out, just get a job again. So if more people can think that way, retiring early isn’t as risky as some might think .
Like opinions on internet about anything, basically the forecasts cover the entire spectrum of possible outcomes! So someone will get right eventually.
How are last year’s forecasts for 2022 panning out?
So so. I wrote “I believe there’s a 65% chance we have greater than a 10% correction in 2022.” I believed in uninspiring returns with the potential to get to 5,000. But my conviction was low. I’ve been turning funny money into real assets and trying to sell gains to pay for life for years now. But remember, I’ve been fake retired since 2012, so I’m in a unique situation.
You should sign up for my weekly newsletter where I’ve shared my thoughts on the stock market consistently through the year as the situation changes.
How have your forecasts turned out?
Related: No Point Making Money If You Don’t Spend It
Hey Sam,
I am curious if you have heard about “Dodd-Frank bail-in clause”. Does this make you reconsider your banking relationships and balances? Maybe worthy of a post?
Unfamiliar. Feel free to summarize more about the clause and the potential repercussions. Thanks.
To sum up my understanding: Post Financial crisis of 2007-2008 the Dodd-Frank Wall Street Reform Consumer Protection Act was approved. It prevents the Government from bailing out banking should Banks become insolvent again, but does allow the Banks more freedoms to seize their clients capital that are in their accounts to shore of the bank’s debts. They call this a “bail-in” versus a “bail-out”. Supposedly a Bank can use unsecure creditors, including depositors and bondholders to to restructure their capital to stay afloat. There is some opinion that even FDIC protected accounts might not be safe during a “bail-in” scenario. I was just looking to hear your opinion about this. I read quite a bit about it and it just seems pretty scary.
Gotcha. I’m not worried. Maybe I should be. Tier 1 capital is high for all banks since the 2008 financial crisis. We learned from our mistakes and have better borrowers and have a stronger banking system now.
I completely agree with what JP Morgan wrote.
Sam,
Love your book and podcast, thanks for all of the great advice in these crazy times. So for someone self employed such as myself with a 410k in their mid 40’s with a family, you think it’s best to re allocate my retirement account? Currently 70/30 in index funds in vanguard. Should I back off and have 70 in bonds for the next year or so while it settles down?
I should clarify, with my Vanguard 401k I do not have the ability to do 1 year treasuries, only vanguard mutual funds.
No, please do not sell your equity index funds and move more to bonds. You will lock-in this year’s losses. Even if the market declines over the next year, assuming you have a 10+ time horizon for this money, since you cannot withdraw without penality until 59.5, you have plenty of time for recovery and growth.
Thank you. The future scares the daylights out of me being self employed but what you say is what I need to hear.
Hi Brandon,
You mean 401k instead of 410k right? It’s hard to give you advice without knowing your income, net worth composition, and how large your taxable investment portfolio is. At least with a 401k, you can make big asset allocation shifts without tax consequences.
Check out the proper asset allocation of stocks and bonds by age. I try to follow an asset allocation model instead of make huge changes from year to year. I will then allocate my CASH FLOW based on different percent splits.
If you could do me a solid and leave a nice book review on Amazon, I’d appreciate it!
Regards,
Sam
Great post as usual Sam, I am planning on hording cash for the next 3-6 months for ‘dry powder’ to be deployed later. I’m thinking unemployment will be ticking up, and all this money people are spending on CC for Christmas is going to have to be paid back, so consumer spending may take a hit. Also, foreclosures may tick up as well in 2023. I hope it all goes well enough so that you can keep being ‘without a job’. Loved how you articulated that ;-)
Thanks, I hope so too. Yes, there definitely should be more real estate opportunities by summer 2023. But if rates come down quick enough, those opportunities will fade.
The spring selling season when inventory increases will be interesting!
I’ll still be pouring into stocks and Fundrise, as I’m not living off of cash flow yet. I will, however, convert another $10k of my emergency fund to I-bonds, as I did last January. The current rate of 6.9% is nothing to shake a stick at.
I was researching I-bonds and noticed that this article used your tweet. I know that guy!
https://marketrealist.com/personal-finance/how-often-can-i-buy-i-bonds/
Hi Sam,
Great insights and thoughtful deductions as always. Thanks you!
Will you be investing in Treasure Bonds with your 2023 retirement and 529 contributions as well? Or will those contributions go towards Equity market as per previous allocation plans?
I’m curious to know if your 60% cashflow investment plan for 2023 is inclusive of the tax advantaged accounts.
Somewhat. As an early retiree, my main focus is on generating spendable passive income now. So once I max out my tax, advantageous accounts, mostly in equities, I then get to work on my taxable accounts. I view my retirement accounts as something I can type after the age of 60.
How about you? How are you investing for 2023 and where are you at your stage in your financial journey?
Thank you for the reply!
We keep pushing our target NW number. We reached the previous number right before Covid and revised it to be twice as much last year!! :-)
We both are in our peak earning years, and my husband would like to go part time in about 3-4 years.
In 2022 – we did 60/40 split in Equities and Reat estate. All of retirement accounts maxed out. Bought 2 I-bonds for 20K as per the trend ;-)
In 2023 – We won’t have similar cash cushion to invest as we did this year. I was planning to do all equities in retirement accounts (max out) and then real estate( Fundrise, Acretrader, Crowdstreet, etc) instead of brokerage accounts plus 2 I-Bonds. Now, thanks to this article, I want to do a bit more research into bonds and CDs for some of those funds.
I share the view of Wells Fargo. My expection is that the recession to be in full force during 2023, marked by a wave of bankruptcies and inflation not coming down as much as expected. This is my scenario of an “inflationary recession”, where quality and defensive stocks will perform better than cash and bonds.
I expect bankruptcies to hit mainly companies that are unprofitable and unable to cut costs. This includes companies like Carvana, Affirm, WeWork, DoorDash and Uber. For that reason, my expectation is that the S&P 500 will remain relatively sheltered from large losses, since it is composed mostly of large, profitable companies. Some of those large companies could even benefit from a reduction in competition and therefore see their margin improve during the year.
Also, with more stimulus on the way (spending bills), COLA and salary increases, I expect inflation to remain above 5%. This will also benefit the S&P 500 companies as some will continue to increase prices into 2023, particularly in food and energy. So I expect EPS to move above 200 again in 2023, despite the recession in the real economy.
For that reason, I expect interest rates (10y) to move higher toward 5%. This will be the only downward pressure on stocks with the lowering of P/E ratios. On the other side, EPS should improve with higher revenues coming from both lower competition and rising prices.
We could end 2023 with 250 EPS and 18 P/E ratio for an S&P 500 target of 4500. This would be a 10% gain over actual market level of around 4100. Plus 2% dividend for a total of 12% return, which would be very reasonable given S&P 500 historical return.
I expect bonds to be a poor investment in 2023, although not as bad as they were in 2022. Higher actual yield could easily be offset by decline in bond prices.
I think cash is a good option for 2023, with yield around 4% and no risk of loss in principal. But I would put no more than 10% of overall net worth. If inflation end up at 5%, this would still mean a -1% loss in real purchasing power. And if the Fed decides to lower interest rates during 2023, cash will miss out on big gains in equities and/or bonds.
Personally, I remain 100% invested in equities entering into 2023, except for a small cash portion invested in short-term treasuries that is offset by a mortgage with a lower interest rate.
Thanks for sharing your thoughts! Always interesting to hear different perspectives.
I disagree on the S&P 500 getting to 4500 if the 10 year bond yield rises from the current 3.6% to 5%.
If the 10 year bond yield goes to 5%, I think the S&P 500 goes down to 3000. A higher discount rate on future cash flows makes the present value of companies lower.
Same for me. Like to read your thoughts!
Here is the reason (calculation) why I think S&P 500 could end up at 4500 : 18 P/E ratio is ~5.6% return. If we move forward to the end of 2023 and that the end of the recession is in view, we could expect 0-2% real growth going forward. Plus, if we still have 2-3% inflation, this means a potential 2-5% increase in earnings for the future. For a total future return of 7.6% to 10.6% per year.
This compares to a 5% fixed return on bonds with no potential for price appreciation if rates stays around 5%.
Obviously, that would imply a 5% interest rate moving into 2024 does not put us into an even worse recession. But that’s not my view. The interest rate rise has been so drastic in 2022 and variable rates have already moved up. Those who cannot bear higher interest rates will mostly be gone by the end of 2023.
Man, where can I get some rose colored glasses like those?? From where I sit this isn’t a bubble that popped. This is the result of real global problems. Some caused by Covid, some by Putin, and others by the Fed, Musk and more. I know the market will surge in the future, but I think 2023 will be another tough year on the Street. And that is before more shoes drop, and it looks to me like there is a whole shoe store hanging out there. Putin tactical nuke or shutting off all gas to Europe? Xi invades Taiwan? Jerome raising rates? Steel prices through the roof? And those are just the problems we can imagine.
Good Morning Sam. I was wondering if you considered boring old money market accounts. I don’t think anyone has mentioned them in a couple of decades but now they are yielding 3.74, should be completely liquid, and almost as safe as a high yield savings account. If high yield savings accounts are in the mid 2%, should we moving that money into money markets? Apologies in advance if this is a silly question. I haven’t looked at money markets in so long that I’m pretty rusty.
Yes, for sure since the Fed has aggressively raised rates. If you check out the bottom of the post of what I’m doing, I’m allocating 60% of my cash to 1-year Treasury Bonds.
Instead of a high-yield savings account, CDs are paying even more if you don’t need the money. For example, CIT Bank has an 18-Month CD for 4.5% now. It was less than 1.5% a year ago. The CIT Bank savings account is offering 3.6%.
Each bank will have different promotions, so it’s worth shopping around. Some banks are only offering 1.5% on the savings rate because the bank probably has enough deposits to lend out.
High yield savings accounts aren’t in the mid 2%.
They are paying 4% nowadays !
But no one knows how long that will last. Same uncertainty for money market accounts.
I haven’t seen 4%+ on a savings account yet. Do share!
According to bank rate 3.85% at Bask Bank is the current highest rate available.
Canadian banks are paying this- range 4.2-4.9%. Same problem though- limited time offers.
Best 1 year rate is 5.1%. Not sure if it’s time to lock in.