A Muddle-Through Market, for Now

“The Supreme Overconfidence Bubble”
Additional Headwinds
No Recession in the Jobs Data
Price over Volume
Cold Weather, Travel, and SIC

These weekly letters, of which I’ve now written well over 1,000 (plus 7 books and multiple papers and articles), are generally about two broad topics: the economy and the financial markets. While related, these aren’t the same. Good news for one can be (and often is) bad news for the other.

I explained my economic forecast in recent letters. Briefly, I think the Fed will raise rates another 1‒2 times by 25 bps, taking the fed funds rate to my original target last year of 5%+. These hikes are beginning to (slowly, step by step, item by item) suppress demand. This will continue because they need to stomp inflation. It will probably push the economy into recession. I don’t expect anything like 2008 but the odds of getting through this painlessly are quite low.

So economically, I’m on the slightly pessimistic side for 2023. Today we’ll talk more about my market outlook for the next year or so. The answer may be disappointing if you want me to be either bullish or bearish. I am neither, at least for now. My best guess is we’ll have kind of a “muddle through” year, featuring moments of both terror and euphoria on the way to relatively minor change.

That doesn’t mean we’re out of the woods. As you’ll see, 2023 could be the pause that refreshes… before a much worse 2024.

“The Supreme Overconfidence Bubble”

GMO co-founder Jeremy Grantham has been in this business longer than most. That doesn’t make him perfect, but he’s seen a lot of market history up close and personally. His strategy has long been to simply avoid buying during overpriced asset bubbles, and particularly during what he calls “superbubbles.” Do that successfully and everything else will work out.