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Published: Dec 23, 2022 5 min read

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Illustration of a stock market graph as if it was a roller coaster with a 2023 getting ready to roll down for the ride
Rangely García for Money

Investors are historically pessimistic about the stock market heading into 2023. But the upside is that the new year could prove to be a great buying opportunity for stocks, especially for younger investors.

The S&P 500, a benchmark for U.S. stocks, is down about 19% so far this year, and the majority of millionaire investors expect to see further double-digit declines in 2023, according to CNBC’s biannual investor survey.

The survey, which polled more 761 millionaire investors, found that 56% of the group expect the S&P to decline 10% next year — with about a third anticipating the index to plummet more than 15%.

Millionaire investors haven’t been this glum since the financial crisis and Great Recession, CNBC noted. And it’s not just millionaires who are worried.

A separate investor sentiment survey from the American Association of Individual Investors shows that pessimism in the stock market is high while optimism is “unusually low.” The survey found that investors have held above-average levels of bearish outlooks in 53 of the past 56 weeks. Meanwhile, expert predictions for the stock market in 2023 are varied, with most expecting continued volatility but promising results in the long term.

Of course, no one can accurately predict where the markets are going. At this time last year, as inflation started spiking, investors had a much more neutral outlook heading into 2022, with many assuming consumer prices would quickly come back down and stocks would be mostly flat.

That obviously did not happen. The doom-and-gloom predictions for 2023 are now being fueled by stubbornly high inflation and — perhaps more importantly — the Federal Reserve's aggressive action to slow the economy and tamp prices down.

The Fed, which is the nation’s central bank, has hiked interest rates seven consecutive times after years of not hiking them, and investors are feeling the whiplash. Higher interest rates make borrowing more expensive for consumers and businesses alike and are intended to lower consumer demand when the economy is running too hot. Rate hikes also increase the cost of doing business and could lead to layoffs or missed earnings goals — which can ultimately affect the price of a company’s stock.

Following the latest rate hike, the Fed signaled there’s still a long way to go to lower inflation to 2%, its preferred rate. And many worry that too much aggression from the Fed will lead the economy into a recession. The delicate balancing act has many investors uneasy about 2023.

"High rates eat into growth and stifle investment, and it’s been tough to process that we could be stuck in this purgatory for months to come," Callie Cox, eToro’s U.S. investment analyst, recently told Money.

Buying opportunity for stock market investors

Despite the challenges facing the economy in 2023, younger investors tend to be much more optimistic about the stock market, CNBC’s survey found.

More than 80% of millennials polled by CNBC reported that they expect their portfolios to actually be higher by the end of 2023. Compare that to 61% of baby boomers who anticipate their assets to be lower.

Some financial experts chalk up the optimism of younger investors to inexperience, i.e. they haven’t lived through an economy marred by high interest rates and inflation. Still, there is plenty of time for their portfolios to recover, and continuing to invest during the downturns could be a savvy move.

"Whenever we have market downturns, it’s hard for investors to 'keep their eye on the prize,' but that’s exactly what they need to do," Jordan Sowhangar, vice president and wealth advisor at wealth management firm Girard, recently told Money.

"If you are financially able, down markets provide an excellent opportunity to buy into your existing or new investments at generally lower levels," Sowhangar added.

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