Consensus – The Irrelevant Investor

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A week ago I used to be in a room with 100 folks and requested the next query:

What number of of you suppose the S&P 500 takes out its October low?

A minimum of 80% of the folks raised their palms.

I then requested, what number of of you suppose we’re in a recession or will probably be in 2023? Everybody who had their hand raised for the primary query stored it within the air for the second.

My small pattern is confirmed by each ballot on the market. Extra folks count on a recession than at every other level in latest historical past. This chart from Jim Bianco confirms our emotions.

I’ve been desirous about how that is baked into the market and the way it may affect the conduct of shoppers and firms. And reflexively, how which may affect the financial system and the market.

Warren Pies wrote about this in his 2023 outlook:

A consensus has fashioned round these consensus points: Fed pivot within the spring. Equities could have a tricky first half, however rally by way of 12 months finish. There will probably be a recession, however it will likely be quick and shallow. With everybody anticipating, and learning, the identical occasions, it’s value reviewing George Soros’ idea of financial reflexivity. Right here, Soros posits that commentary of the financial system results in concepts that change conduct, which in flip modifications the financial system itself. Making use of this idea to the menu of points dealing with 2023 results in various questions: Is there a threat that a lot anticipation of a Fed pivot might trigger a untimely rise in asset costs and, thus, dissuade the Fed from pausing as quickly because it in any other case would have? Is it potential for a extremely anticipated recession to be very dangerous? Or will shoppers and companies put together accordingly, thus blunting the affect of any downturn?

You possibly can’t take something to the financial institution in the case of investing, however I’ve realized over time that the market tends to idiot most individuals more often than not. When everyone seems to be anticipating the market to go a method, it often goes the opposite.

As we head into the final week of the 12 months, the S&P 500 is down 20% for 2022. Is that sufficient harm for a softening financial system, an aggressive fed, a 4.6% risk-free price, and valuations that aren’t a screaming cut price? Every of those is worthy of an extended dialogue, however my reply might be not. However I’m consensus, and in case you’re nodding your head, then you might be too. Right here’s to hoping the consensus is flawed.

Wishing everybody who celebrates a really merry Christmas.


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