I am still quite bearish on the short term outlook expecting stocks to find a bottom between 2,800 to 3,200 in the first half of 2023, suggests Steve Reitmeister, editor of Reitmeister Total Return.
But then things become glorious for the start of a new bull market. And going all the way back to 1900, the average first year gain for new bull markets is +46.2%.
It would be easy to simply consider a small cap ETF fund. Indeed that would do quite well as the bull market resumes. Gladly, we can do a notch better than that. Which is why ARK Innovation ETF (ARKK) is a favorite investment for 2023.
Right now, Cathie Wood’s fund is the laughing stock of the investing world as it has fallen over 60% in 2022. Yes, that is about three times worse than the S&P 500.
The reason is simple. She is focused on the highest growth stocks that also carry the highest beta. That is glorious when the bull is running…and an absolute death sentence when the bear comes to town.
Here again, we are talking about a great investment idea for 2023 — and buying it as the new bull market emerges. So if the average one year return for the S&P 500 during a new bull is 46.2%, then it would not surprise me to see ARKK double that return without any leverage.
Now check out the top 5 holdings to appreciate how far these stocks have fallen of late — and thus how much they will likely bounce when the bull is ready to run:
Aye, but here is the rub…If you buy too early, and the market is still racing lower, you will have tremendous losses on your hands. So I caution against just blindly buying it without some consideration for determining market bottom.
So this is an evolving story that needs a vigilant watch on all the key indicators like employment, earnings, inflation, Fed rates and price action. That is the only way to determine when it may be time to enact this ARKK trade — which will probably be sometime in early 2023.