Stock prices fell relentlessly for most of 2023 as the Federal Reserve promised to aggressively raise rates to combat runaway inflation — and then followed through with aggressive action. Now that short-term rates are above long-term rates – a so-called yield curve inversion – experts predict a further weakening of the economy. Although a recession has yet to begin, investors are wondering when stock prices will rise again.
Bankrate surveyed investment experts as part of its Market Mavens Fourth Quarter 2023 survey and asked them when the next bull market, a period of rising stocks, would begin. We also asked them about the recent plunge in the cryptocurrency markets and what that means for investors.
Cryptocurrencies have fallen even faster than stocks as investors quickly became more risk-averse as interest rates rose. High-profile explosions and outright fraud have dogged the sector again this year, and this speculative investment has been a big loser in 2023.
Forecasts and analysis:
This article is one in a series discussing the results of Bankrate’s fourth quarter Market Mavens survey:
- Pros expect a modest rally in stocks in the coming year, despite growing fears of a recession
- Ten-year government bond yields will rise even further in the coming year, experts say
- This is when professionals see the next bull market coming and whether crypto can make a comeback
This is when experts see the next bull market beginning
It hasn’t been much fun being a stock investor in 2023, with stocks falling throughout the year in response to rising interest rates and an uncertain timeframe for when the Federal Reserve would pause on raising rates. Even with the Fed acting so aggressively, inflation has remained stubbornly high.
Rising interest rates have inverted the yield curve, indicating that a recession is coming. Although a recession has yet to materialize, many investors view this as a foregone conclusion. But investors are a group of forward-looking people, and many are looking forward to when the next bull market will begin.
According to the experts surveyed, this will be the moment when the next bull market will begin:
- 7 percent said, “A new bull market has already begun.”
- 21 percent said, “A new bull market could start before July next year (or around the next six months).”
- About 36 percent said, “A new bull market could start in the second half of next year (2023).”
- 21 percent said, “It could be 2024 before a new bull market begins.”
- 14 percent said, “It could be sometime after 2024 when a new bull market begins.”
That split spreads quite broadly over the next eighteen months, but overall, 57 percent say another bull market would start in 2023, whether in the first half or the second half of the year.
But what is the thinking behind the experts’ predictions?
Those expecting the bull market to return in the first half of 2023 include Hugh Johnson, chief economist at Hugh Johnson Economics, although even he admits to being a bit overly optimistic.
“The prospects for an economic or earnings recovery are likely to improve or ‘turn for the better’ during a hard landing or recession in the first and second quarters of 2023,” Johnson said. “That is why I expect a more positive environment in the financial markets to emerge in the first or second quarter, even though that may sound like wishful thinking.”
Another proponent of a bull market return in the first half of the year is Sameer Samana, senior global market strategist at the Wells Fargo Investment Institute. Samana says: “We see a recession in the first half of 2023, which will reduce inflation and allow the Fed to cut rates in the second half. That should allow stocks to bottom out in the first half and start looking towards an economic recovery.”
The bull market will return in the second half of 2023, says another group of experts, including Patrick J. O’Hare, chief market analyst at Briefing.com.
“A new bull market should begin when there is confidence in the idea that earnings expectations have been lowered enough that investors’ fear of falling into a value trap has been dramatically reduced, and when there is confidence that the Fed will cut rates. says O’Hare. “We think this will start to bear fruit in the second half of 2023.”
Add Michael Farr, CEO of Farr, Miller & Washington, to this group who expects a recovery in the second half, but not without caveats.
“This is a bit too precise a period,” says Farr. “Early 2024 is also on the horizon, but stocks typically begin their recovery after the Fed stops tightening.”
Sam Stovall, chief investment strategist at CFRA Research, also expects a turnaround in the second half of the year and expects a recession to occur in the near term. But Stovall doesn’t expect to achieve the 40 percent or more decline seen in some infamous bear markets like 2007-2009.
But other experts expect the onset of a new bull market to continue into 2024, including Charles Lieberman, managing partner and chief investment officer of Advisors Capital Management.
“The market will be mispriced if the Fed continues to raise rates as they have suggested and recent economic data imply this is necessary,” Lieberman said. “Inflation is unlikely to slow down anytime soon, so interest rates need to go higher and stay high for longer. The rate cuts needed to restart the economy will therefore probably have to wait until 2024.”
But with a recession yet to (officially) begin, inflation remaining high and the Fed promising further rate hikes in the coming months, if not longer, a bull market may not be quite ready to emerge, even if investors are more than ready for. An.
What is the future of cryptocurrency?
If stocks are risky, then cryptocurrencies – typically unbacked by assets or cash flow from an underlying entity – are highly speculative. And when the Fed raised rates in 2023, crypto assets fell rapidly. Combine that decline with the outbursts of some notable crypto trading firms, including FTX, and some outright fraud, and it’s no wonder investors are skittish.
Bankrate asked the investment experts for their thoughts on cryptocurrency and how this year’s crash affects the long-term future of what some call an emerging asset class. Overall, these experts had an exceptionally gloomy view of digital currencies.
“The investors who got hurt deserved it,” said Marilyn Cohen, CEO of Envision Capital. “They drank the crypto Kool-Aid and believed the hype that it was a store of value. It was built from nothing and is worth nothing.”
“The crypto crash is showing people what they’re based on — absolutely nothing,” said Kim Forrest, chief investment officer and founder of Bokeh Capital Partners.
Farr echoed many of these sentiments: “Deprived of any intrinsic value or fiat, cryptocurrencies rely on what the next buyer is willing to pay to determine value. Now that sentiment has turned negative, prices have also been paid. If sentiment turns, I think crypto values will recover as well. These are exceptionally speculative investments.”
Lieberman sees this year’s crash as a “major blow to crypto.”
“The speculators will continue to speculate, but this is still far from a mainstream asset. The risks remain high,” he says.
Meanwhile, one investor points to the fact that the problems with crypto assets — whose total value fell from about $3 trillion in 2023 to less than $1 trillion at the end of 2023 — have largely not had spillover effects on other traditional financial markets.
“Fortunately, the problems with crypto often persist,” said Dec Mullarkey, managing director of SLC Management. “But the risk is that continued stress will force those affected to liquidate traditional assets to cover losses, increasing volatility in other markets. For now, there appears to be little effect on the broader markets.”
Still, one investor struck a positive note for cryptocurrency. Wells Fargo’s Sameer Samana says, “We think the technology is promising and that the long-term shakeout will be positive for the stronger participants, much like the Internet companies in the late 90s/early 00s.”
Methodology
Bankrate’s Q4 2023 survey of stock market professionals was conducted via an online survey from December 1 to 9. Survey requests were sent by email to potential respondents across the country, and responses were submitted voluntarily through a website. The responses included: Jim Osman, founder of The Edge Group; Dec Mullarkey, Managing Director, SLC Management; Sam Stovall, chief investment strategist, CFRA Research; Michael Farr, CEO, Farr, Miller & Washington; Hugh Johnson, Chief Economist, Hugh Johnson Economics; Patrick J. O’Hare, chief market analyst, Briefing.com; Chuck Carlson, CFA, CEO, Horizon Investment Services; Louis Navellier, CIO, Navellier & Associates, Inc.; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Charles Lieberman, managing partner and chief investment officer, Advisors Capital Management; Kenneth Chavis IV, CFP, senior investment manager, LourdMurray; Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Brad McMillan, head of investments, Commonwealth Financial Network; Marilyn Cohen, CEO of Envision Capital.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
