Poll the citizens of Wall Street, and do you know what you’ll find? They all think a recession is coming, and the stock market gloom will continue into 2023. It’s consensus. If we enter a recession, it will be one of the most forecasted and anticipated in history.

Contrarians built on betting against the crowd view this as quite the bullish argument. The stock market likes to fool the majority, and if asset prices fall next year, it will fool NO ONE.

Now is probably a good time to mention that Wall Street has a terrible track record of forecasting the economy and markets. It’s easy to forget when year-end rolls around and a new batch of predictions hits the wires. But it’s true. The reason is not that Wall Street strategists and economists are dummies. It’s that accurately predicting the future consistently is utterly impossible.

But that doesn’t stop us from trying!

Nailed It, Missed by a Mile

According to this Wall Street Journal article, analysts nailed their estimates for S&P 500 earnings in 2022 at $221. It was their most accurate prediction since this stat began to be followed in 1995. Sadly, hitting the bullseye on earnings didn’t matter one bit. Ballooning interest rates torpedoed multiples. Late last year, the S&P 500 was trading around 22x earnings. Had it maintained that multiple, the index would be sitting near $4,862. But it’s not. It’s 1,000 points less at $3,862. We’re now trading at 17x earnings.

To accurately guess where the market will be a year from now, you need to anticipate both earnings AND the multiple investors are willing to pay for them. It’s hilariously hard.

The same principle applies to quarterly earnings reports. Even if you know the company’s numbers ahead of time, you still don’t know how the market will react. Are the numbers priced in already? Will this be a buy-the-rumor, sell-the-news reaction? Are investors optimistic? If so, by how much? The number of unknowables is maddening.

Mind your Plan and Price Charts

If this is your first rodeo and the drumbeat of gloomy forecasts for next year has you depressed, you’re giving these people too much credit. They rarely have any idea what’s going to happen. And even when they get the economy right, they can still be dead wrong about how the stock market will respond.

Thank goodness we have price charts and technical analysis to guide us. Long-term investors should stick to their goals and plan regardless of how the short-term winds blow. Act, don’t react. Even if 2023 is as messy as feared, it simply delays the inevitable stock market recovery that carries asset values to new highs. History and logic demand it.

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