Most investors are probably excited to put 2022 in the rearview mirror. The S&P 500, which is a broad index of the 500 largest companies by market cap in the U.S., ended the year down 19%, its worst annual performance since 2008, when the world was dealing with the Great Recession. I’m sure everyone is hoping for better days ahead.
As we look toward 2023, there are no shortages of predictions for where the stock market will go this year. Let’s examine what one top bank thinks and how investors should handle this information.
A flat performance in 2023
According to investment bank Goldman Sachs, the S&P 500 will end 2023 at the 4,000 level, essentially flat compared to the end of 2022. The company’s strategists expect the revenues of the businesses within the S&P 500 to rise 4% this year, with earnings per share staying flat as a result of compressed margins.
Goldman Sachs’ target of 4,000 assumes that the Federal Reserve is able to curb soaring inflation with a “soft landing,” or a situation where rising prices get under control without seriously slowing down the economy. However, if there is a recession in 2023, Goldman Sachs forecasts a 20% decline for the S&P 500 in 2023.
How to interpret this
To be completely clear, I would take these projections, no matter how prestigious the financial institution is, with a huge grain of salt. These market strategists are more often wrong than right. They thought the S&P 500 would rise 9% in 2022, which was way off the mark. And before that, they said the S&P would end 2021 at 4,300, far from the 4,766 that it actually ended at.
I don’t think anyone can predict with any level of certainty what the next 12 months will bring when it comes to the stock market. To understand what an impossible and futile task making market forecasts is, we can look at 2020 for a history lesson. If you knew that a pandemic would bring the global economy to a screeching halt, I’m sure you would have guessed that the market would end 2020 in the red. But we know that this was wrong, as the S&P 500 climbed 16% that year.
That being said, I have no clue what the S&P 500 will do in 2023. And I’m completely fine with this reality. You should be, too. Your main concern should be to focus entirely on what you can control, and this includes how much you’re investing on a recurring basis, as well as what stocks you are buying.
You can do this regardless of what the stock market is doing, benefiting from something called dollar-cost averaging. This simply means that you will take advantage of multiple price points, eliminating the need to time the market. The overarching goal is to continuously be a net buyer of stocks, with an eye toward the long term.
A sound strategy involves investing in businesses that offer customers superior products and services, possess competitive advantages, have strong growth prospects, and are trading at compelling valuations. Amazon and Alphabet are two examples that immediately come to mind. You can comfortably own these businesses for the next five years and beyond.
Market strategists will continue providing their useless predictions about where they think stock prices are headed this year, which will usually be dead wrong. It’s best to ignore these so-called pundits and stick to your investment strategy through thick and thin.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Neil Patel has positions in Alphabet and Amazon.com. The Motley Fool has positions in and recommends Alphabet, Amazon.com, and Goldman Sachs Group. The Motley Fool has a disclosure policy.