Mark Lister: Baffled by these markets? You’re not alone

If you’re feeling a little confused about where global sharemarkets, you’re not alone, writes Mark Lister.

Opinion

If you’re feeling a little confused about where global sharemarkets are headed, you’re not alone.

Even the experts are unsure, with the range of predictions for how things will play out from here the widest in decades.

Wall Street forecasters have been caught well and truly off guard this year, with the strength of the US sharemarket taking almost everyone by surprise.

In January, the average end-of-year target for the S&P 500 index was 4070, which implied a calendar year return of 6 per cent in 2023.

The S&P 500 is up 18 per cent already, well ahead of where every strategist picked it would finish the year, and we’re only seven months in.

Deutsche Bank was the only firm which came close, with the European bank picking a 17 per cent annual gain back at the start of the year.

Then again, market forecasts should be taken with a grain of salt. None of this group predicted a fall of almost 20 per cent last year, after all.

The average forecast for 2022 was for a gain of about 4 per cent, with just three out of 14 strategists picking a negative year.

Looking ahead, the surprisingly buoyant performance we’ve seen so far this year has wreaked havoc with the Wall Street crystal ball.

Some forecasters are sticking to their guns, while others have thrown in the towel and revised their forecasts higher to reflect the more positive mood of the market.

This has seen the gap between the highest and lowest S&P 500 targets blow out to the widest in 20 years.

Looking to the balance of 2023, the most optimistic firm sees a further rise of almost 10 per cent, while the most cautious forecast implies a 25 per cent fall from where we are today.

Those are the extremes, but the average forecast still points to a double-digit decline between now and the end of the year.

According to Bloomberg, this is the most negative second-half view we’ve seen since at least 1999, and it’s one that’s clearly at odds with current sentiment.

The truth is probably somewhere in the middle, although right now, the good news is outweighing the bad.

Mark Lister is an investment director at Craigs Investment Partners.

The US headline inflation rate has fallen back to 3 per cent, a huge achievement after it hit a 41-year high of 9.1 per cent a year ago.

That progress might just be enough to ensure the interest rate hike we’re likely to see from the US Federal Reserve this week is its last one.

Fixed income and shares both tend to perform well in the aftermath of a central bank pause, especially when inflation is slowing and economic activity is holding its own.

In that regard, the US economy is looking resilient and it’s hard to see a major stumble looming over the coming six months.

In the opposite corner, there’s the delayed impact of sharply higher borrowing costs to contend with, as well as higher valuations.

Higher share prices increase the likelihood of a pause or pullback, although the improving inflationary backdrop could see buyers step in and limit the extent of any sell-off.

Choose who to side with – the conservative Wall St strategists or the upbeat “Mr Market”. Otherwise, hedge your bets and take something from each of those opposing views.

Either way, take comfort in the knowledge that many of the pros are equally unsure where things might go from here.

Mark Lister is an investment director at Craigs Investment Partners. The information in this article is provided for information only, is intended to be general in nature, and does not take into account your financial situation, objectives, goals, or risk tolerance. Before making any investment decision, Craigs Investment Partners recommends you contact an investment adviser.