Wall Street Completely Whiffed On Predicting The Markets In 2022

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Wall Street analysts are entering 2023 with less confidence than they entered 2022 after the Federal Reserve and investors severely overestimated the stock market’s long-term health this year, The Wall Street Journal reported Monday.

Whereas executives and economists generally anticipated that markets would likely undergo no significant shifts to the upside or downside in 2022, there is significant debate entering 2023 as to whether the U.S. will enter a “soft landing,” where inflation is tamed without a significant economic slump or layoffs, according to the WSJ. At the time of writing, the Dow Jones Industrial Average is the best-performing of the three major stock indices, having declined roughly 9.25% year-to-date after recovering from a late-September bear market, while the S&P 500 and Nasdaq Composite have declined more than 19% and 33% respectively, according to Google Finance.

“We all approach the coming year with a certain level of humility,” Christopher Smart, chief global strategist and head of the Barings Investment Institute, told the WSJ. Smart characterized global events like the Russian invasion of Ukraine and China’s stubborn insistence on its zero-COVID policy as “unlikely” economic spoilers, even if analysts knew they were a possibility entering 2022.

As late as April, administration officials infamously took the stance that inflation, which would balloon to 40-year highs over 9% in June, was “transitory.” In December 2021, Treasury Secretary Jannet Yellen argued that the term was inaccurate after Fed Chair Jerome Powell claimed inflation was not a short-term problem, according to The New York Times.

Investors have generally been growing more optimistic about inflation, with 90% of fund managers anticipating prices to lower by the end of 2023, while those expecting the economy to grow weaker in 2023 fell to 69% in December, compared to 73% in November, Bloomberg reported, citing a Bank of America survey. Powell, on the other hand, noted repeatedly in a Dec. 14 press conference that the Fed is still looking for more evidence before it can confidently assess that inflation is on its way down. (RELATED: Fed’s Preferred Inflation Index Cooled In November, But Core Prices Remain Stubbornly Elevated)

While major inflation metrics, including the Producer Price Index (PPI) and Consumer Price Index (CPI), have fallen from their respective peaks in March and June, both measures remain above 7%, well above the CPI’s pre-pandemic norm of below 2.5%, according to the Federal Reserve Bank of Minneapolis. The Fed’s preferred indicator, the “core” Personal Consumption Expenditures (PCE) Price Index, which measures inflation but discounts the more-volatile prices in food and energy, has hovered at or above 4.7%  since November 2021, according to archived data from the Bureau of Economic Analysis.

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