Here is my forecast for stocks and real estate in 2H 2022.
At last! Expectations for Fed rate CUTS are finally increasing, which is the main reason why the stock market rallied June 20, 2022. See the emerging red ink below 0 for 2023.
Investing In Stocks For 2H 2022
We saw the biggest drop in 10 years in the June US Purchasing Managers Index (PMI). Further, we finally saw a decline in oil prices this week.
If the trend continues, then it is likely we will see clear signs of inflation peaking once the July data comes out in August. I forecast we might even get positive June inflation data out in July.
If this is the case, 3.5% was likely the peak for the 10-year bond yield. With less fear of a further rise in interest rates, risk appetite should increase, resulting in a rebound in equities in 2H2022.
This thought process also implies 3,666 on the S&P 500 may be the bottom of this latest bear market. Obviously, there are no certainties when it comes to investing.
However, if the S&P 500 drops below 3,700 again, I will be a more aggressive buyer as I mentioned in last week's newsletter. ~15X earnings is reasonable.
Related: How To Feel More At Ease When Stocks Are Selling Off
What About The Real Estate Market For 2H 2022?
If the equities market has reached a bottom or is forming a bottom and will rebound in 2H, how should one invest in the real estate market?
The U.S. median housing price has outperformed the S&P 500 by over 25% year-to-date because the median home price is up year-to-date.
However, the real estate market tends to lag the stock market by 6-12 months due to a lot more friction when it comes to selling. You've got to find a new place, pack, list, give up your low mortgage, find an agent, pay taxes and fees, etc. What a PITA!
Therefore, real estate buyers can probably still find deals 5% – 10% lower than January 2022 prices over the next six months. But anything more than a 10% discount will be hard to find.
If equities resume their upward trend and interest rates resume their 40+-year downward trend by end of 2022, then the demand for real estate will likely rebound again.
As a result, if you're in the market for a new home or investment property, I say the time to look aggressively for deals is from now thru this winter.
S&P 500 Target Price For Year-End 2022
As of June 28, 2022, my S&P 500 target price forecast for year-end 2022 is 4,200. I think inflation will cool, interest rates will come down, and equities will have a rebound in 2H 2022. However, 4,200 is still about 12% for the year.
Real Estate Price Target For Year-End 2022
I believe the median U.S. home price will see a 8% YoY increase. This is down from double-digit price increases. However, this would mean the median U.S. home price will have outperformed the S&P 500 by an impressive 20% for the year 2022.
Achieve Financial Freedom Through Real Estate
Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income. Stocks are fine, but stock yields are low and stocks are much more volatile. The -32% decline in March 2020 was the latest example. However, real estate held steady and appreciated in value then.
Given interest rates have come way down, the value of rental income has gone way up. The reason why is because it now takes a lot more capital to generate the same amount of risk-adjusted income. Yet, real estate prices have not reflected this reality yet, hence the opportunity.
Take a look at my two favorite real estate crowdfunding platforms that are free to sign up and explore:
Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing.
CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends.
I've personally invested $810,000 in real estate crowdfunding across 18 projects to take advantage of lower valuations in the heartland of America. My real estate investments account for roughly 50% of my current passive income of ~$300,000.