Hello, everybody. It's Sam from Financial Samurai. And in this episode, I want to talk about the 2023 Wall Street S&P 500 forecast, because I just got a look at 16 forecasts and the dispersion is huge. It doesn't look like anybody knows what's going to happen. So the S&P 500 price target ranges between $3,675 to $4,500.

This implies returns of between negative 9% to positive 12% based off the S&P 500 today at around $4,000. According to a Bloomberg survey, the average 2023 S&P 500 forecast is $4,900. So that's basically saying we're not going to go anywhere for 2023. And a recent Reuters poll of 41 Wall Street strategists shows a median S&P 500 price target of $4,200.

So not bad, but that's 5%, 5% increase for the year. Hey, we'll take it after a terrible 2022. But up 5% is not that inspiring. Knowing this range of S&P 500 price targets for 2023 is important because all investments, all risk asset classes are based off the risk free rate of return.

So the risk free rate of return is the 10 year bond yield and the 10 year bond yield is about 3.6%. So if you don't believe the S&P 500 is going to be greater than 3.6%, then you shouldn't be investing in the S&P 500. And you should be investing in 10 year Treasury bonds.

But what's interesting right now is that there's a huge yield curve inversion. So again, the 10 year bond yield is at 3.6%. But the one year Treasury bond yield is at about 4.7%. So that's a 1.2% inversion, which is the highest since 1981. And what's also interesting to note is that after every single yield curve inversion, especially a really deep inversion, a recession follows within the next 12 to 16 months.

So I absolutely believe in 2023, we're going to see a recession, another recession, because we saw one technically in the first quarter and second quarter of 2022. And we're gonna see another one in 2023. Maybe it's in the third and fourth quarter, because excess savings is getting spent down the Fed if the Fed hikes to 5% on the Fed funds rate and keeps it there for, let's say six months to eight months, we're going to see millions of job losses, millions of job losses.

And that's what the federal wants to reign in inflation, which is already coming down. You've seen the PC numbers come down. We saw the October CPI numbers come down, we're probably gonna see the November numbers come down. So the trend is down and inflation, just as it rose really quickly, can fall really quickly because the cure for inflation is higher prices.

And that's what we saw. And then we've seen demand destruction. So the Fed continues to be aggressive as inflation rates are falling. We're probably going to be in a world of hurt. So hang on to your jobs, focus on being a good employee. Don't piss anybody off, keep your head down, come into the office earlier, leave later, this whole quiet quitting thing.

It was interesting. It was it was good for like, I don't know, six months of quiet quitting, just do the minimum to not get fired. But now if you do the minimum, you're probably going to get let go, you're probably gonna get let go of the bottom 10%, 15% in a recession, generally always gets let go.

Why wouldn't they get let go? If you were the boss, and you needed to cut costs, you're gonna let your bottom 10 to 20% of performers go. Just look at Twitter. It's interesting because Elon has let go of 75% of the staff, so thousands of people, yet Twitter is still running.

Now some will argue, well, there's a freeze in, you know, the programming and the coding of Twitter. So that's why things don't break. That's what big tech companies do. They freeze the code during you know, big holidays and so forth. So things don't break. And as soon as they start adding new features and updating things, Twitter is going to start breaking and getting glitchy.

But still, if you cut 75% of the workforce, and it's still working fine, and actually, the user base is growing, and the activity is growing. You should be worried, at least if you're in big tech, that there's a lot of fat to cut. There's always a lot of fat to cut.

And there's more fat to cut. It's more apparent during a recession in a bear market. For 2023, the key risks to the S&P 500 performance now include earnings cuts and valuation multiple compression. So these two things were to happen, the S&P 500 could easily decline by 15%, 10-15% from current levels.

Now, conversely, there could be greater than expected earnings cuts, everything is relative. But there could be a valuation increase right. So as earnings are get get cut, you know, the market doesn't go down as much, and therefore valuations increase. And this would occur if the market looks beyond the earnings cuts, because we just expect them to be cut.

And then the market expects better times ahead. And the better times ahead could be as a result of the Fed pivoting sooner than expected sooner than let's say, March 2023. And they start saying, Hey, look, we see recognize inflation is coming down, we're not going to raise anymore. And we're actually going to start cutting sooner than expected.

That could easily reignite the bull market and get the S&P 500 back to let's say, 4500. And I do personally believe the worst of the bear market is over when the S&P 500 hit 3577 in mid October 2022. What matters most is what the Fed plans to do over the next 12 months.

I've written in my previous posts and newsletters how maddening it is to be a public company CEO, because you can improve operational efficiency, expand margins, grow revenue and grow profits. And you could still see your stock price go down because the stock market is basically, I would say 80 plus percent controlled by what the Fed is doing.

Don't fight the Fed on the way up or down. As Asana billionaire CEO Dustin Moskowitz wisely quipped, I'm CEO of the Asana company, but lately, Jay Powell has been CEO of the stock price. And sadly, this scenario will likely continue to be true for the next 12 months. So the positive about this, so the positive is that, hey, you could be really sucking wind into your company.

But if the Fed pivots and starts injecting liquidity back into the system and starts lowering interest rates again, your stock price could do well. It might not outperform the broader markets, but it could actually start going up again. So let me share some of the prognostications of the various Wall Street analysts from bearish to neutral to bullish.

So let's see, SG has a 3800 target price and it says our quote hard soft landing scenario sees EPS growth rebounding to 0% in 2023. Rebounding to 0%. We expect the index to trade in a wide range as we see negative profit growth in the first half of 2023.

A Fed pivot in June 2023. China reopening by a third quarter 2023 and a recession in the US in the first quarter of 2024. That's interesting that they say in the first quarter 2024, I would think it'd be a little bit sooner. And China is actually reopening now because there have been so many protests and you're seeing the COVID zero policy get a little bit softer now.

Just check out the news. They're getting a little bit more lenient about allowing people to have more freedom. All right, Mike Wilson from Morgan Stanley, he is supposedly the number one rated institutional investor strategist. He has a target of 3900. So what is that? Two and a half, 3% below current levels.

He has an EPS of $195 per share for the S&P 500. And he says this leaves us 16% below consensus for 2023 in our base case and down 11% from a year over year growth standpoint. So that's below consensus. He believes consensus will come down. So he believes consensus will come down and he sees a price trough of between 3000 to 3300.

Now that if that happens is going to be very, very painful because that's another what 20% downside from here. And if that happens, there's going to be blood on the streets and that might force the Fed to pivot finally. All right, now let's look at a couple of the neutral houses, my old stomping grounds Goldman Sachs has a 4000 target, so no growth, 224 EPS.

The performance of US stocks in 2022 was all about a painful valuation derating. But the equity story for 2023 will be about the lack of EPS growth. Okay, therefore zero earnings growth will match zero appreciation in the S&P 500. That sounds like it makes sense, but that's probably not what's going to happen.

The market always discounts something. They're not going to simply say no earnings growth, no S&P 500 growth, there's always some kind of change. Credit Suisse, they have a target of 4050. So two and a half percent upside, they have an EPS estimate of 230. And they say 2023 is a year of weak, non recessionary growth and falling inflation.

All right, finally, the most bullish Wall Street house is Deutsche Bank with a 4500 target price. So a 12 and a half percent upside from the recording of this podcast $195 EPS per share. So that's interesting. They've got the highest target price, yet they have one of the lowest EPS per shares.

As you recall, Credit Suisse and Goldman Sachs had like a $230 EPS per share. So this is the case where they think there's going to be a valuation re rating, I guess valuations go up, and the stock market goes up because investors will be discounting the current unpleasant times and better times in the future.

So Deutsche Bank writes, equity markets are projected to move higher in the near term, plunge as the US recession hits, and then recovers fairly quickly. We see the S&P 500 at 4500 in the first half, down more than 25% in Q3, and back to 4500 by year end 2023.

So wow, now that is a roller coaster. Are you kidding me? So up 12 and a half percent by you know, Q2, I guess, and then down 25% in Q3, and then back right up. Come on now, that's, it seems totally ridiculous. But the truth is, nobody knows the future.

And that's what they're predicting. And everybody has the right to predict where they see the stock market to be and then invest accordingly. So some of you have asked, what am I doing with my money? Well, in 2022, I thought, okay, maybe there might be 5%, 4 or 5% upside to the S&P 500 to 5000.

But I also said that there would be greater than a 60% chance there would be a 10% drop in the S&P 500. So I didn't have strong, strong conviction to sell aggressively, but I was cautious. And I had about 30% of my net worth in public equities, which resulted quite now in about a 15 to 16% decline.

Losing money stinks, but we've had a great 10 year run. But for 2023, it's really interesting because we now have one year treasury bonds yielding 4.7%. So if you take 4.7%, and times it by 4000 on the S&P 500 at this current moment, you get 4188. And if you look at the Wall Street strategist forecast, 4188 is in the top quintile, top quintile of forecast.

So I think if, if we get there, I think most of us will be happy because we didn't lose money. And so if you can get a guaranteed 4.7%, right with no risk, and there's tax advantage of not having to pay state income capital gains tax on treasury bonds, that's really attractive for those in New York, Hawaii, California, and other high income tax states, then why not allocate the majority of your cash flow and savings to one year treasury bonds, it's the most relatively attractive treasury bond, again, because the 10 year bond yield is about 3.6%.

For the remaining 30 to 40% of my cash flow, I'm going to be opportunistic and buy the S&P 500. If it's below 3800, if it gets below 3800, I'm buying more aggressively again. But right now just nibble here and there at 4000. It's just doesn't seem that attractive. In terms of real estate, I think real estate prices are going to fall like 10 to 15% by sometime in 2023.

And then you're gonna have an opportunity to buy again, because the Fed is going to cut rates, and then demand will come back as mortgage rates decline, I totally see mortgage rates declining by two to 3%. So the average 30 year fixed mortgage rate could decline from a high of 7% down to four and a half to 5%.

And when that happens, you better have some cash if you want to buy a new primary resident, or some rental properties, because I think the demand is going to whiplash back. So what else am I doing? Well, I'm definitely maxing out my tax advantage retirement accounts. So I just had the SEP IRA, because I have financial samurai as a small business.

I do have a solo 401k, but I would have to do some freelance work to earn freelance income to contribute to that solo 401k. But if I do do any work, I'm going to be contributing the max that I can. For employees, you can contribute 22,500 pre tax to your 401ks in 2023.

That's up from 20,500. So you best take advantage of that. Two, I'm going to contribute the gift tax limit maximum of 17,000 to each of my kids 529 plans. I super funded my son's 529 plan in 2017. So 2023, I can re-zoom contributing. And I think in retrospect, yeah, it was a good move, super funding, I just forgot about it.

Let the market do what it would do. And here we are again. So I'm just going to contribute more to both son and daughters 529 plans. Three, I'm going to put the kids to work, see if they can earn at least $6,500 from our online business, and then invest that money in their respective Roth IRAs, right Roth IRA, you contribute after tax money.

But if you earn below the standard deduction limit for 2023 of 13,850, you don't pay tax on that. And then the Roth IRA money compounds tax free and then you can withdraw it tax free. So it's like a triple win, no brainer. And the big no brainer for parents is to teach our children work ethic, the value of money and money management skills.

And then finally, as long as I can get over a 4% risk free rate of return on treasuries, I'll be allocating 60 plus percent of my cash flow to buying treasury bonds. And then if the S&P 500 gets below 3,800 again, I hope it doesn't, but it clearly easily could.

I'll start allocating 60 plus percent of my cash flow to buying the S&P 500 index regardless of where the one year treasury bond yield level is. I mean, obviously, if it's higher, I'm going to allocate that 40% to buying as much treasury bonds as possible. So you got to look at the levels, everything's relative, the risk free rate of return.

And this is just for my stock and bond allocation capital, capital allocation, right? I've got private equity, you know, venture capital, venture debt, private real estate and physical real estate. But we can talk more about those other asset classes in another episode. So I'd love to hear what your forecasts are for the S&P 500 in 2023.

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You can go to FinancialSamurai.com/News. Alright everyone, I hope everyone has a wonderful rest of the year. I'm going to keep on cranking, keep on writing, keep on recording so long as my voice allows. And I'll see everyone around. Take care.