The S&P is off around 19% this year. The increased, rising rate also worries amid the super hawkish Fed cues, supply chain woes, red hot inflammation, and Russia-Ukraine war have dampened Wall Street this year. The overall index saw the worst start to the year since 1939. People worried about the S&P 500 Performance in 2022 crash this year may find this information helpful as the index will most likely rally in 2023.
Here is some deeper insight into the topic.
Inflation Might Ease in 2023
According to the managing director of the International Monetary Fund, Kristalina Georgieva, global interest rates are likely to keep rising until 2023. It is also when continued rate hikes will cool inflation down and help stabilize markets and economies, as quoted on CNBC. The commodity prices, including oil, might have leveled off and started falling lately. If it continues, the recessionary fears stay rife, and the oil prices might ease more in fear of lesser economic activity. This will tame inflation in turn and also restore economic growth.
History Also Suggests an S&P 500 Rally in the Cards
The S&P 500 performance in 2022 has been higher three years later in 8 out of 9 cases in which the overall index has dropped 20% or even higher from an all-time high going back to 1957, as per research by Keith Lerner, a co-chief investment officer. Stocks have also returned an average of 29% during these 8 cases. Learners’ data also reveals that the S&P 500 performance has increased to 15% on average in 7 times stocks have tanked to 20% or more, dating back to 1957.
Markets Are Pricing in the Rate Hikes Quickly
To Learner’s point, investors have also re-priced stocks quickly this year to bake in sky-high inflation rates and the Federal Reserve’s quicker interest rate hikes. Markets have also been priced already in the likely US economic recession during Q2, and the fat Fed rate increases in the coming time. This is why the yield curve has now inverted this year.
According to Peter Cardillo, chief market economist for Spartan Capital Securities, “Towards the end of this year, we may begin to rally. The Fed is going to get really aggressive. There are signs of inflation decreasing, and I also believe that the labor market is soon starting to weaken, and this would alleviate the Fed from being too aggressive.”
The Fed has also lifted the benchmark it has in overnight interest rates by 2.25% points in the current year as it tried to overcome the decade’s high rates of inflation and the investors continued in weighing how aggressive this US central bank might have to be going ahead.
According to the 2022 S&P 500 Performance, investors are also hoping that the Fed may put some light on how the future big rate hikes may be and how vital this economy is when the central banking heavyweights also, including Fed Chair Jerome Powell, would meet this week for the annual symposium in Wyoming, Jackson Hole.
The recent corporate earnings also have been supporting stocks. With the results in the form of most S&P 500 companies, the second quarter earnings are also expected to have risen 8.8% from the year, going over the 5.6% estimated by July 1. Analysts have their estimates for an entire year of profit gain, which has come slightly down since July, but they are still forecasting a growth of 8% for 2022.
S&P 500 performance in 2023 is expected to be better than the previous years. Investors have been worried about whether the profits can grow quickly enough to support their stock valuations, mainly with the recent rallies. The S&P 500 forwards the 12-month price-over-earnings ratio at around 18 compared with the 22 at the end of December and its long-term average of about 16.