I’m thinking about what next year is likely to bring for the stock market. This year has been a story of high inflation and rising interest rates pushing down share prices, but what will 2023 bring?
My basic assumption for 2023 is that there will be a recession in the first half of the year. With that in mind, I have three predictions – two positive and one negative.
The good: Costco and McDonalds
That’s mostly because I’m expecting the dominant investing theme of 2023 to be a recession. And I think that companies that have low prices for consumers will hold up best.
Both Costco and McDonald’s have prices that are attractive compared to their competitors. More importantly, both have structural advantages that allow them to maintain these low prices.
In the case of Costco, it has a revenue stream coming from the membership fees it charges its customers. That means that it doesn’t have to rely on product margins for income.
McDonald’s also generates revenue beyond what it makes from food sales. Since it owns the buildings its restaurants are housed in and leases them to operators, it makes money in this way.
In a recession I expect consumers to be budget-conscious and I think this will favour companies that can keep their prices low. The best examples I can think of are Costco and McDonald’s.
The bad: Coinbase
In a more pessimistic prediction, I don’t like the look of Coinbase (NASDAQ:COIN) shares for 2023. Cryptocurrency seems to be firmly out of fashion and I don’t expect that to change next year.
I’m expecting stock market participants to stay away from risky assets. And anything to do with crypto is pretty near the top of that list.
The news around Sam Bankman-Fried and FTX looks to me to have enhanced cryptocurrency’s reputation as a vehicle for criminal activity. Whether or not that’s justified, I think investors will stay away.
That bodes badly for Coinbase, in my view. But even if I’m wrong, there’s another problem for the company.
If crypto trading achieves a more mainstream status, I think brokers like Charles Schwab will start offering crypto trading. That would give Coinbase some tough competition.
Either way, I think the company is likely to have a difficult 2023. And as it is losing money at the moment despite the recent popularity of cryptocurrencies, I’m fearful.
My bold prediction is that Coinbase won’t be a publicly traded stock by the end of 2023. I think it will either be bought out (best case) or go bankrupt (worst case).
Predicting the stock market
Predicting what will happen in the stock market always comes with a degree of uncertainty. And this is especially true over a short period of time, such as a year.
That’s why I prefer to think long term with my investments. I like Costco shares and McDonald’s shares because I think that their competitive advantages will endure well beyond 2023.
Even if I’m wrong about an impending recession, I’d be happy to buy shares in either company at today’s prices. Coinbase, I’m inclined to avoid.
The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of investment advice. Bitcoin and other cryptocurrencies are highly speculative and volatile assets, which carry several risks, including the total loss of any monies invested. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
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Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.