Is a stock market crash coming for us in 2023?
It's no secret that 2022 has been a rough-and-tumble year for ASX shares and the share market. As we sit on the cusp of December, the S&P/ASX 200 Index (ASX: XJO) remains down by 4.34% year to date in 2022 thus far, with many swings and roundabouts along the way.
Much of these market gyrations have been caused by central banks and inflation. As inflation around the world rose to decades-high levels in some cases, central banks like our own Reserve Bank of Australia (RBA) have been aggressively jacking up interest rates this year.
Rising rates are hugely detrimental to share markets, seeing as they reduce the appeal of having money in 'risky' assets like shares. That's partly why we have seen such temperamental markets this year.
But could this be just a warning of what's to come in 2023? Could we really see a stock market crash next year?
That's a prospect that will probably terrify at least some investors out there. Stock market crashes can be scary, brutal events, and wealth-destroying ones at that if approached in the wrong way.
And it's one that Deutsche Bank is predicting will turn out to be accurate.
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Investment bank predicts stock market crash for 2023?
According to reporting from the ABC this week, Deutsche Bank is warning that central banks' efforts to reduce inflation will "come at a significant global cost". The investment bank warns that "it will not be possible to [reduce inflation] without at least moderate economic downturns in the US and Europe, and significant increases in unemployment".
The bank predicts that a stock market crash is almost certain to accompany these downturns:
We see major stock markets plunging 25 per cent from levels somewhat above today's when the US recession hits, but then recovering fully by year-end 2023, assuming the recession lasts only several quarters.
A stock market crash is conventionally defined as a drop in a share market of 20% or greater, usually in a short space of time. So this seems to be what Deutsche Bank is predicting for 2023.
So should we all sell out now and run for the hills?
Well, a few points. Firstly, no one knows what the markets will do tomorrow, let alone next month or next year. Not you, I, Warren Buffett or Deutsche Bank.
So while it's possible Deutsche Bank's predictions come true, it's also possible that they are wildly off. Predictions of a market crash are always a dime a dozen in the world of investing, and occur regularly, despite what the share market is doing. Very few turn out to be piercingly accurate.
Buffett loves a bargain, so should you
But even if there is a share market pullback or crash next year, it could be a red-hot opportunity for savvy investors. Stock market crashes can be scary, confidence-sapping, and traumatic. But they also represent a rare opportunity to pick up some of the best shares on the market at a bargain basement price.
When there is widespread fear in the markets, investors tend to throw everything out the window, not just the worst-hit poor performers. That's why investors like Warren Buffett love a crash. It gives them the chance to make some life-changing investments.
Remember the stock market crash of 2020? That saw BHP Group Ltd (ASX: BHP) drop to under $27 a share. Today, it's over $45.
Commonwealth Bank of Australia (ASX: CBA) got down to $57 or so in March 2020. Now it's back over $108 a share today.
So remember that if there is indeed a crash next year. It could be the best thing that has ever happened to your portfolio, if you let it.
