Image source: Getty Images
With fears of a recession mounting, investors are fretting over the uncertainty surrounding a possible stock market crash in 2023. And these fears may well be justified.
Last month, legendary British investor Jeremy Grantham launched his perspective letter 2023. And he didn’t look pretty. For those who don’t know, Grantham co-founded GMO, an investment management firm established in 1977. Since then, his assets under management have grown exponentially, reaching an estimated $65 billion.
In your letter, you listed a myriad of factors potentially pointing to a 16.7% decline in the S&P 500 by the end of the year. And that was the most optimistic perspective of him. In the worst case, he predicts that the stock market will crash by as much as 50%!
Does this mean that investors should start selling everything and run for the hills? No. Let’s take a closer look at what’s going on.
Investigating the possible stock market crash of 2023
In the letter, Grantham outlined the main catalysts for a possible impending decline. And it’s nothing that hasn’t been talked about before: Covid-19, Ukraine, supply chain disruptions, inflation and interest rates. But what worries you so much about a stock market crash is that the current bear market is actually quite unusual.
Throughout history, each bear market has been triggered by different factors. But they share some common features:
- A drop in corporate profits
- A housing market crash
- an economic downturn
And yet none of this has really happened. Looking at some of the latest S&P 500 earnings reports and even FTSE 100 companies, earnings are, on average, higher, with some firms even posting all-time highs. Meanwhile, the housing sector, while showing some signs of weakness, is looking quite resilient. And as for a recession, there has yet to be one.
That is why Grantham believes that a bubble still exists and that the stock market crash could be just around the corner.
Now what?
Convincing as Grantham’s arguments are, there is another possible explanation. The central banks’ goal of achieving a “soft landing” is working. That may be a naive thought, but even Grantham admits that exciting investment opportunities remain, even with a possible stock market crash just around the corner.
So what are investors to do? Trying to time the market is a losing game that often causes investors to lose substantial wealth. Instead, the best practice, in my experience, is to use a cost per pound average. Instead of investing all of your available capital in stocks at one time, build it up over time.
Using this simple buying strategy, investors can still benefit from today’s low prices if the stock market continues to rise. At the same time, if Grantham’s prediction comes true, there will still be plenty of money available to capitalize on even cheaper valuations later in the year.
Don’t forget that the stock market has an excellent track record of recovery, fueled by high-quality deals. So while the short term remains shrouded in uncertainty, the potential for long-term wealth creation remains abundantly clear.
var config = {
apiKey: ‘1ed121d592e04642d57912bb369ef696621661a3’,
product: ‘PRO_MULTISITE’,
logConsent: false,
notifyOnce: false,
initialState: ‘NOTIFY’,
position: ‘LEFT’,
theme: ‘DARK’,
layout: ‘SLIDEOUT’,
toggleType: ‘slider’,
iabCMP: false,
closeStyle: ‘button’,
consentCookieExpiry: 90,
subDomains : true,
rejectButton: false,
settingsStyle : ‘button’,
encodeCookie : false,
accessibility: {
accessKey: ‘C’,
highlightFocus: false },
onLoad: function () { // hide Cookie Control recommended settings button.
var recommendedSettingsButton = document.getElementById(‘ccc-recommended-settings’);
if (recommendedSettingsButton) {
recommendedSettingsButton.classList.add(‘hide’);
} },
text: {
title: ‘Privacy Notice’,
intro: ‘This site uses cookies, pixels, and other similar technologies to improve your web site experience and to deliver you personalised ads about our own and third party products and services. Please read more about how we collect and use data about you in this way in our Cookies Statement in our Privacy Policy. You can change your cookie settings in your browser at any time. ‘,
necessaryTitle: ”,
necessaryDescription: ”,
thirdPartyTitle: ‘Warning: Some cookies require your attention’,
thirdPartyDescription: ‘Consent for the following cookies could not be automatically revoked. Please follow the link(s) below to opt out manually.’,
on: ‘On’,
off: ‘Off’,
accept: ‘Accept’,
settings: ‘Cookie Preferences’,
acceptRecommended: ‘Accept Recommended Settings’,
notifyTitle: ‘Privacy Notice’,
notifyDescription: ‘This site uses cookies, pixels, and other similar technologies to improve your web site experience and to deliver you personalised ads about our own and third party products and services. Please read more about how we collect and use data about you in this way in our Cookies Statement in our Privacy Policy. You can change your cookie settings in your browser at any time. ‘,
closeLabel: ‘Save Preferences and Close’,
accessibilityAlert: ‘This site uses cookies to store information. Press accesskey C to learn more about your options.’,
rejectSettings: ‘Reject All’,
reject: ‘Reject’,
},
branding: {
fontColor: ‘#fff’,
fontFamily: ‘Arial,sans-serif’,
fontSizeTitle: ‘1.2em’,
fontSizeHeaders: ‘1em’,
fontSize: ‘1em’,
backgroundColor: ‘#313147’,
toggleText: ‘#fff’,
toggleColor: ‘#2f2f5f’,
toggleBackground: ‘#111125’,
alertText: ‘#fff’,
alertBackground: ‘#111125’,
acceptText: ‘#ffffff’,
acceptBackground: ‘#111125′,
buttonIcon: null,
buttonIconWidth: ’64px’,
buttonIconHeight: ’64px’,
removeIcon: false,
removeAbout: false },
necessaryCookies: ( ‘wordpress_*’,’wordpress_logged_in_*’,’CookieControl’,’PHPSESSID’,’fivc’,’fivs’,’fivp’,’Ookie’,’Fool_subinfo’,’_gads’,’_gid’,’_gat’,’_ga’,’__utma’ ),
optionalCookies: (
{
name: ‘Sharing’,
label: ‘I would like content tailored to my personal preferences.’,
description: ‘We work with advertising partners to show you ads of products and services you may be interested in. You can choose whether or not to have ads delivered in a personalised way by setting this option. You can return to review this setting at any time by clicking the "C" logo in the bottom left corner of any page.’,
cookies: ( ‘_ga’, ‘_gid’, ‘_gat’, ‘__utma’, ‘_gads’ ),
onAccept: function () {
// Add Facebook Pixel
!function(f,b,e,v,n,t,s)
{if(f.fbq)return;n=f.fbq=function(){n.callMethod?
n.callMethod.apply(n,arguments):n.queue.push(arguments)};
if(!f._fbq)f._fbq=n;n.push=n;n.loaded=!0;n.version=’2.0′;
n.queue=();t=b.createElement(e);t.async=!0;
t.src=v;s=b.getElementsByTagName(e)(0);
s.parentNode.insertBefore(t,s)}(window,document,’script’,
‘https://connect.facebook.net/en_US/fbevents.js’);
fbq(‘init’, ‘901682110316659’);
fbq(‘track’, ‘PageView’);
fbq(‘consent’, ‘grant’);
// End Facebook Pixel
// Enable Google ad personalization
// gtag (‘set’, ‘allow_ad_personalization_signals’, true ) ;
},
onRevoke: function () {
fbq(‘consent’, ‘revoke’);
// Enable Google ad personalization
// gtag (‘set’, ‘allow_ad_personalization_signals’, false ) ;
},
recommendedState: ‘on’,
lawfulBasis: ‘consent’,
},
),
statement: {
description: ”,
name: ”,
url: ‘https://www.fool.co.uk/help/privacy-and-cookie-statement/’,
updated: ”
},
};
CookieControl.load(config);
