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Published: Jan 20, 2023 5 min read

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Illustration of a bear seating on red downwards arrow seesaw by himself
Kiersten Essenpreis for Money

With 2022 and all the market losses it brought now in the rear view mirror, investors are looking ahead.

After ending the year down nearly 20%, the S&P 500 index is in the green for 2023. And the Nasdaq Composite — which plunged 33% in 2022 — is up more than 4.5% this year.

So when will stocks fully recover from the bear market? Many experts appear optimistic it will happen in 2023. But unfortunately for eager investors, it’s difficult to say. Here’s what you need to know.

Market experts say 2023 could be better for stocks

Many experts agree that the worst of this bear market is over for stocks.

The steep rise in interest rates, which was the “most damaging factor” for the stock market last year, is likely over, says Brad McMillan, chief investment officer for Commonwealth Financial Network. (In December, the Federal Reserve slowed the pace of its interest rate hikes.)

He adds that a recession — which economists have been saying is likely — may not be as severe as initially feared.

“The strong labor market should keep supporting the economy, making any recession fairly mild,” McMillan wrote in a blog post earlier this month. “And stock valuations are now lower and more reasonable than they were last year.”

And even though stocks are still significantly lower than they were at the beginning of 2022, the Dow Jones Industrial Average (one of the three major indexes that are generally used as a benchmark for stocks overall) came out of a bear market this fall.

Not to mention the fact that stocks rarely decline two years in a row. Data recently analyzed by Ryan Detrick, chief market strategist at the Carson Group, shows that stocks have only fallen in back-to-back years three times since 1950 — during the 1973/1974 recession and twice during the tech bubble of the early 2000s.

“Fortunately, we don’t see similar scenarios within the current environment, so I think the odds could favor a snapback in 2023,” Detrick wrote.

Meanwhile, experts from Goldman Sachs recently predicted in their 2023 outlook that the stock market will “most likely rally” by the end of 2023.

Risks remain for the stock market

But investors aren’t out of the woods just yet.

Experts also expect some serious headwinds to temper the stock market's performance this year — think inflation that’s still well above historical levels, the potential for more interest rate hikes, and uncertainty surrounding geopolitical factors like China’s reopening and the war in Ukraine.

Stocks could also take a hit if a looming recession turns out to be worse than expected.

While a market turnaround could be on the horizon this year, investors shouldn’t get too comfortable, warns Mark Haefele, chief investment officer at UBS Global Wealth Management.

“Economic data remains noisy, making it hard to say for certain that the recent encouraging economic trends will continue,” he wrote in a recent note to clients.

What investors should do now

When it comes to the stock market, no one has a crystal ball. In their 2023 outlook note, Goldman Sachs’ wealth management experts warned of “heavy fog ahead.” In the face of so much uncertainty, they advise their clients to avoid any major changes to their investment strategies and to prepare for a rally that may take longer than expected to materialize.

The bottom line for investors? There's a good chance stocks will perform better this year than last, but it’s impossible to say exactly when a major turnaround will come.

Financial advisors often recommend implementing a strategy like dollar-cost averaging, which involves investing a set amount of money into the market at regular time intervals. That way you don’t have to worry about timing the market.

More from Money:

How to Know When the Bear Market Is Over — and Why You Shouldn't Wait to Invest

Why 2023 Could Be a Big Year for Stocks, According to Historical Trends

Here’s What Investing Experts Are Watching in 2023, From Inflation to China’s Economic Reopening