Odds of a Bull Market in 2023

It’s so hard to know who to listen to about what to expect in 2023. Will there be a recession? What will happen to the stock market this year?

Wall Street got it wrong last year. For example, analysts at the Goldman Sachs Group (GS)predicted the S&P 500 would finish 2022 at 5,100 points. As it turned out, it finished 2022 at 3,839.50 — that’s a decline for the year of more than 18% and a difference of more than a 1,200-points. As an investor, you already know 2022 was a tough year.

The good news is that double-digit declines like we saw last year are not common. And back-to-back declines are even more rare. They always say past performance is no guarantee of future results. And that’s true. At the same time, historical trends show the stock market tends to perform well after a negative year.

https://www.macrotrends.net/2526/sp-500-historical-annual-returns

As you can see in the graphic, it is rare to see years of back-to-back decline. And back-to-back down years tend to cluster around dire economic periods.

— Four years in a row from 1929 through 1932.

— Three years in a row from 1939 through 1941.

— Two years in a row in 1973 and 1974.

— Two years in a row in 2000 and 2001.

No one knows what will happen to the stock market in 2023, but probability suggests that after a large down year, 2023 could be a better year.