Once the equity market finds a bottom in the first half of 2023 it is doubtful the market will roar back for a sustained rally. We believe the market will trade sideways for 3-5 years. Our theory is based on three assumptions:
- First: the Fed maintains its Fed Funds Rate in a range of 3-5%.
- Second: the Fed does not restart its Quantitative Easing (QE) program.
- Third: CPI is range bound between 3-5%.
Under such conditions Real GDP will be muted, Public Debt will remain high in the $31-35 Trillion range (well above 100% of GDP), and Prices will remain elevated. We are essentially talking about stagflation without a Fed put. As such, we believe the equity market will trade sideways in a sawtooth pattern of peaks and troughs for 3-5 years. If correct, this will be a wonderful stockpickers’ market.