The Omaha, Neb.-based Carson Group, which has been insisting since 2022 that there won’t be a recession, is now gearing up for a new bull market, said Ryan Detrick, the firm’s chief market strategist.
Accordingly, the group has upgraded its return expectations for equities, saying they’ll log a 21% to 25% increase in 2023, up from an earlier projection of 12% to 15%.
“We were one of the only firms to say ‘no recession,’ and everyone’s jumping on that now,” Detrick said. “Now we’re saying this.”
The Carson investment team first went on record in late October 2022 saying it was pretty likely the bear market was over, and it then moved to overweight stocks in December.
Since then, the economic news has played out in the firm’s favor amid the recovery in major parts of the economy, such as housing and manufacturing, combined with continued strength in consumer spending, low unemployment and declining interest rates, all of which paints a very positive picture, Detrick said.
“Manufacturing, housing, consumer—these are all the main cogs of the economy,” he said. “Consumer is two-thirds of the economy. Housing and manufacturing are another 20%. We don’t see any major areas that will be a pocket of weakness. The elements that were headwinds last year maybe will be a tailwind.”
A large part of the firm’s midyear outlook, released late July, was dedicated to “The New Bull Market.”
Detrick used a standard rule of thumb defining the start of a bull market as the moment stocks hit 20% off their lows. He looked at 13 of those situations since 1956.
In three cases, after the 20% increase, the market slid back to a new bear low. But 10 transitions were successful, and stocks rose on average 17.7% higher within a year.
This year, there could be an added boost from the four-year U.S. presidential cycle, since November and December in pre-election years have historically seen strong stock markets, he said.
One welcome change he is anticipating is a “significant broadening out of different sectors participating in the market, not just tech” and he’s prepared with a strong investment in small caps, midcaps and cyclicals such as industrials and energy.
“In the last 12 months, the best performing stock in the Dow was Caterpillar,” Detrick said. “There’s a lot of strength from industrials. You wouldn’t see industrials leading if there were a big scary recession ahead.”
And what about that inverted yield curve as a recession predictor?
“We know the yield curve has sniffed out trouble before. In eight out of the last 10 recessions it was right. But for whatever reason it’s just not that relevant this time,” he said. “Even the guy who came up with the yield curve analysis came out and said it might not be working this time.”