2023 Stock Market Forecast:

23 Investing Trends to Watch This Year

Part 1: Predictions 1-6

Authored by Louis Navellier,
Chief Investment Officer, Navellier & Associates, Inc.

Co-Authored by Bryan Perry, Gary Alexander, Ivan Martchev, and Jason Bodner
Contributors to Navellier & Associates’ weekly Marketmail newsletter

FEBRUARY 2023

Navellier & Associates, Inc.
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Thank you for requesting access to our ongoing research: 23 Trends Impacting Investors This Year.

The entire team at Navellier & Associates came together to compile our ideas for what we could experience in the market this year. We are actively working on 23 expectations for 2023, covering all the hot-button topics like inflation, the Federal Reserve, Russia, crude oil prices, the electric vehicle revolution, Treasury yields, economic growth—and more!

Below, you will find the full details on the first six market trends I believe will impact investors in 2023.

Don’t worry, we’re going to release the others in quick succession as we finalize our research, and we will email them to you immediately.

For today, we’re going to focus on the U.S. Economy and some of the fad investments that destroyed many investors’ portfolios in 2022. Is a rebound in the cards or more pain ahead?

We’ll look at the data and not the headlines to see what’s really going on.

But first, a quick look at last year…

Goodbye 2022

If you were asked to describe 2022 in one word, what would you say? Terrible. Volatile. Unexpected. Maybe your word would be a little more “colorful.” And you’re not necessarily wrong.

Last year was a difficult one for investors, and it was certainly unexpected. I mean the S&P 500 had climbed to a new all-time high at the start of January 2022. But then it felt like it was all downhill from there, as Russia invaded the Ukraine, inflation skyrocketed, global central banks aggressively raised key interest rates, economic growth weakened, and the NASDAQ slipped into a bear market.

Unfortunately, investors’ concerns over these 2022 issues haven’t dissipated with the ringing in of a New Year. As a result, the volatility that characterized much of 2022 isn’t showing any signs of letting up any time soon either.

So, if you were to listen to the fear-mongering financial media, you might be tempted to run for the hills along with a good portion of Wall Street. But in my opinion, this is the worst thing you could do right now.

The fact is every new year offers new opportunities—and I’m particularly excited about what’s in store for us in the remaining 11 months of 2023.

Now, I don’t have a crystal ball, and if we’ve learned anything over the past few years, it’s that New Year’s predictions can fall flat pretty quickly due to unforeseen circumstances (e.g., the COVID-19 pandemic, the Russia-Ukraine war, etc.). But that doesn’t mean we shouldn’t carefully consider which trends are developing and have historically had an impact on the market.

I’m going to call each of these insights a prediction because that is what it is—an analysis of what is to come, but not a promise. No matter what we call it, when you finish this special series of market research, we aim for you to have clarity into what is impacting the market and, perhaps, end up just as excited as we are about the New Year.

The First 6 Predictions for 2023

Let’s get right to four predictions that cover the U.S. Economy and the Federal Reserve. Then we’ll cover those fad investments I mentioned earlier.

Prediction #1: Bad News Is Good News

As Jason Bodner (who writes Sector Spotlight in the Navellier & Associates weekly Marketmail) recently stated, “We live in a bizarro world.” Typically, weak economic data would be cause for the stock market to sell off. But that hasn’t been the case recently; the stock market has rallied in the wake of weak data—and sold off following positive economic data reports.

What in the world is happening right now? In his January 10, 2023article, Bodner explains.

“Friday’s [January 6, 2023] price action was very strong on economic data that came out, such as Friday’s non-farm payrolls number, which came in hotter than expected, adding 223,000 jobs vs. +202,000 expected. Unemployment was also better than expected at 3.5% vs. 3.7% expected. But the market really began to rally on wage data: Average hourly earnings, month-over-month was +0.3% vs. +0.4%lower than expected, while year-over-year was +4.6% vs. +5.0%also lower than expected.

This data should ease some of the Fed’s concerns on the tight labor market.

Again—we live in bizarro world. Any data showing economic slowing as a result of a successful war against inflation is good for stocks. Hence the sizeable rally [on January 6, 2023].”[1]

Simply put, it is now normal for a piece of negative news to be viewed as a positive since it could convince the Federal Reserve to rethink its aggressive tightening policy. This is going to be important to remember as we work through our remaining predictions and the impact they could have on investors.

Prediction #2: U.S. Economy Can Avoid Recession, Attain a “Soft Landing”

The big question on most investors’ and economists’ minds right now is whether the U.S. can avoid a recession—and we all know that the answer to the question comes down to the Federal Reserve. With the Fed’s latest key interest rate hike, our central bank is now in line with short-term market rates. They’re above the 10-year Treasury yield, and we need the Fed to admit that they are at parody or “neutral” with short-term rates.

But if the Fed were to go well above market rates, it would squelch economic activity and risk pushing the U.S. into a recession. Personally, I think the Fed needs to hit the “pause” button in regard to further key interest rates, as more monetary tightening is overkill and risks producing a recession.

But when has the Fed ever listened to me? If the Fed does listen and pauses key interest rate hikes, then we are much more likely to avoid a recession and attain a “soft landing.”

Prediction #3: Fed Chairman Jerome Powell Will Eventually Admit It’s Time to Loosen Monetary Policy

The Federal Reserve was a party pooper back in December, with its hawkish comments despite cooling inflation, falling Treasury yields and weak manufacturing data. Fed Chairman Jerome Powell even refused to acknowledge that the Fed’s fight against inflation had improved, putting him at odds with market rates and the recent decline in Treasury yields.

Now, not that I want to defend Chairman Powell’s comments—I’m more likely to criticize and call him a “weenie”—but Powell was citing points from an old Beige Book survey. One of the biggest problems with the data that the Fed receives and then cites is that it’s typically a bit behind the latest economic data (i.e., it’s out of date!).

But with the latest retail sales data showing consumer spending slammed on the brakes in the all-important holiday shopping season, as well as the latest Consumer Price Index (CPI) and Producer Price Index (PPI) showing a decline in inflation, the Fed will need to start admitting that the time for tight monetary policy is over.

We saw a few hints that looser monetary policy may be in the offing this year in the latest comments from Powell. He finally admitted that inflation has cooled and even stated that the “disinflationary process has started.” Of course, he also said, “the job is not fully done.”

Despite the Fed’s doublespeak, it’s clear that the Fed plans to be very cautious moving forward. So, although another 0.25% hike is likely, the words “disinflation” and “cautious” were the dovish words that we wanted to hear—and it could imply that its finally time for looser monetary policy.

I should also add that the Fed is very politically sensitive. So, the closer we get to 2024, the Fed should miraculously start to behave.

Prediction #4: U.S. Dollar Will Lose Its Mojo

The U.S. dollar exhibited tremendous relative strength versus its counterparts in 2022, as the Federal Reserve grew more aggressive with monetary policy before other central banks. In fact, the euro briefly fell below parity with the U.S. dollar in the latter half of 2022. But with the Fed (hopefully) nearing the end of its tightening phase, the U.S. dollar is anticipated to lose some ground this year.

In an article written on January 4, 2022, Gary Alexander, a Senior Writer at Navellier & Associates, succinctly summed up this expectation:

“The U.S. dollar will lose its mojo as euro rates rise. Europe was the first continent to try Modern Monetary Theory (MMT) and the first to abandon it with rapidly rising rates to try to match the U.S. dollar’s returns. For years, global capital fled to the U.S. dollar for real returns and stability, pushing the euro and yen down and the dollar up.

That should reverse in 2023, as global rates rise to meet the dollar, giving the euro a boost and the dollar no advantage, reversing the 8.2% gain in the U.S. Dollar Index (DXY) in 2022, and a phenomenal 25.8% gain in that index from May 24, 2021, to October 10, 2022. [As of this writing] the Dollar Index has already dropped almost 10 points from 113.3 to 103.5 since October 10, so it is well on its way to fulfilling this prediction.”[2]

Graphs are for illustrative and discussion purposes only.
Please read important disclosures at the end of this commentary.

Understanding the likely path of the dollar is important. You see, a strong dollar can negatively impact the earnings of companies with sales abroad. When the dollar falls, those same sales generate more dollars and earnings rise. This will help those companies with their year-over-year comparisons and meeting or beating analyst expectations.

Prediction #5: Crypto Collapse Intensifies in 2023

At the end of 2022, I broke my silence on the FTX Crypto Collapse. With $3.1 billion in creditors now looking for money in the FTX bankruptcy, this Ponzi scheme is only expected to get worse.

Prior to the crypto collapse in November 2022, the crypto universe was valued at a whopping $3.0 trillion back in December 2021. Fast forward, and the crypto market is now valued at about $900 billion, or down 70%, according to CNBC. The collapse culminated with bankruptcy of FTX—and as the collapse is investigated more, we’ll likely see even more downside in the crypto market.[3]

What’s interesting is that FTX founder, Sam Bankman-Fried, appeared before Congress more than SEC Chairman Gary Gensler in 2022. The fact that Sam Bankman-Fried was the second-biggest political donor last year may explain why he was so welcome in Congress and the White House.

Some of the members of Congress that accepted money from Sam Bankman-Fried have offered to donate that money to charity. But if the SEC allegations are true—that Sam Bankman-Fried used client funds to buy influence in Congress—then that money should be returned to the bankruptcy court trustee for client restitution.

With new leadership officially in the House, Sam Bankman-Fried’s actions to buy influence in Congress will likely be endlessly debated, and that doesn’t bode well for the crypto market this year.

Prediction #6: Blowback Against ESG Investing Will Persist

One of the big developments of 2022: ESG (Environmental, Social & Governance) investing died.

Last year, most ESG investors (e.g., universities, public pension plans in blue states, etc.) grossly lagged the overall market, and big-name investors like Blackrock, Jim Cramer and Kevin O’Leary were hurt by ESG. Part of the issue is that the SEC is still trying to force companies to disclose their ESG activities, but this is a complicated and subjective process. Considering that the S&P Global kicked Tesla out of its ESG index and replaced it with ExxonMobil earlier this year, it’s not surprising how companies are assigned ESG scores is a complicated matter.

Interestingly, S&P Global isn’t the only one rethinking its ESG versus fossil fuel holdings. All of the major indices have recently boosted their energy weights. As an example, the NASDAQ recently added Diamondback Energy, Inc. (FANG) and Baker Hughes Company (BKR). In other words, two of the six stocks added to the NASDAQ 100 are energy stocks—and no energy stocks were removed from the index.

And in the case of the S&P 500, energy stocks now account for about 6% of the index, up from barely 2% a year ago. I still anticipate energy stocks will account for 30% of the S&P 500, as institutional blowback against ESG continues to spread.

Watch Your Inbox

We hope you enjoyed today’s research and that you will put it to good use. Please watch your inbox in the next day or so for the next six market trends impacting investors in 2023.

In the meantime, if you’re interested in finding out how the topics covered today will impact your personal portfolio…

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My name is Louis Navellier and I’m most widely known as an investment adviser and market analyst. Since 1980, I’ve been publishing my quantitative analysis on growth stocks and I’ve made it my life’s work to continuously refine and develop my analysis for investors like you.

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[1] https://navellier.com/1-10-23-low-volatility-and-large-spreads-who-could-like-that/
[2] https://navellier.com/1-4-23-expect-less-of-the-same-blessedly-in-2023/
[3] https://navellier.com/11-15-22-stocks-impress-as-crypto-is-eviscerated/

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Past performance does not guarantee future results. Investment in equity strategies involves substantial risk and has the potential for partial or complete loss of funds invested. Investment in fixed income components has the potential for the investment return and principal value of an investment to fluctuate so that an investor’s shares, when redeemed, may be worth less than their original cost.

IMPORTANT NEWSLETTER DISCLOSURE: The hypothetical performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Growth Investor, Louis Navellier’s Breakthrough Stocks, Louis Navellier’s Accelerated Profits, and Louis Navellier’s Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters reported hypothetical performances should be considered mere “paper” or proforma hypothetical performance results and are not actual performance of real world trades. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters contain hypothetical performance that do not include transaction costs, advisory fees, or other fees a client might incur if actual investments and trades were being made by an investor. As a result, newsletter performance should not be used to evaluate Navellier Investment services which are separate and different from the newsletters. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or hypothetical Newsletter performance claims, (which are calculated solely by Investor Place Media and not Navellier) should be referred to InvestorPlace Media, LLC at (800) 718-8289.