Once the dust settled on the June 30 session, the equities market finished its worst first-half performance since 1970. Nevertheless, investors have been lighting up search engines and internet forums asking, when will stocks go back up? Will they have to wait until 2023, or is it possible for a recovery to commence in 2022?
It’s understandable why many people have yet to capitulate amid several headwinds, such as soaring inflation, a hawkish Federal Reserve, armed conflict in eastern Europe and, to top it all off, rising fears of a global recession. While these are major concerns, the underlying reality is many retail investors got a taste of extreme bullishness mere months ago.
After such a high, market participants don’t want to let go of the bone so quickly. For instance, while equities trading on margin have come down significantly from highs, levels are still very elevated relative to pre-pandemic norms. That’s one reason regular folks are asking: when will stocks go back up?
Another factor is recognition that equities don’t travel in perfectly linear trajectories. The retail investor received quite an education during the downtime of the pandemic. Desiring to put their newfound knowledge to good use, an eagerness exists that prior market rallies never quite had.
To answer the question of when stocks will go back up, it’s best to consult experts on opposite sides of the table.
Patience May be a Virtue
One of the best pieces of guidance anyone can receive is from individuals who have experienced the ebb and flow of a target industry or event. Regarding the equities sector, few are as qualified to give an opinion as Jim Coulter, founding partner and executive chairman of TPG. Having navigated seven or eight major market resets, Coulter is able to recognize patterns of bearish progression.
In his view, down cycles occur in “three chapters” and we are currently finished with the first – or close to it. Once the unsustainable multiples are excised from the system, the second chapter involves focusing on earnings vulnerabilities. Once those toxicities are removed, the market may move into the third chapter.
That’s where the landing occurs, though at that point it becomes a question of whether it’s a hard or soft landing. To provide one side of the coin, Coulter suggests stocks may go back up in 2023, provided the equities sector tumbles hard and fast, thereby sparking a forward-looking sentiment on Wall Street.
The Urges are Real
After such a rip-roaring year in 2021, waiting on the sidelines seems an unfitting denouement. Fortunately, CNBC’s Jim Cramer has a much more optimistic view, armed with evidence suggesting the equities market could recover this year.
Specifically, Cramer cites an analysis from legendary market technician Larry Williams, who predicted that after some choppy trading, the stock market will have a strong rally through late August. Essentially, Williams believes “commercial hedgers in stock futures, which are composed mainly of banks, mutual funds and governments, tend to have the best understanding of their industry compared to professional money managers and run-of-the-mill investors.”
He later noted that “When these guys get very bullish in their positioning … it’s often a great buying opportunity.” Right now, the commercial hedgers appear to be gaining optimism while hedge funds and retail investors are throwing in the towel. This contradiction is ultimately bullish, meaning that data-drive buyers can potentially enjoy a sequel soon.
When Will Stocks Go Back Up?
Ultimately, though, no one analyst or expert is the sole and exclusive authority of where the equities sector heads next. While each expert presents different data sets that compellingly argue for their particular thesis, the reality is that the market is not guaranteed to repeat historical patterns.
True, the U.S. equities market does feature an upward bias, but even this aphorism can eventually be proven false. Therefore, conduct your own due diligence when attempting to answer when will stocks go back up.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
