Editor's note: It's time to prepare for a rebound... Many investors fled the markets in 2022 due to out-of-control inflation and heightened geopolitical tensions weighing on several major asset classes. But history shows the market tends to bounce back following high-inflation years, meaning stocks could be poised to bounce back in 2023... That's why True Wealth senior analyst Brett Eversole believes it's crucial for investors to start preparing now before the downtrend reverses. In today's Masters Series, adapted from the January 18 edition of the True Wealth Systems Review of Market Extremes, Brett highlights the impact of today's rampant inflation on stock prices... compares the bear market we're experiencing with previous major downtrends... and reveals how history shows the markets could bounce back in 2023...
Two Reasons Why Stocks Can Soar By Brett Eversole, senior analyst, True Wealth Inflation was the cause of most investor troubles last year. But now, it's easing in a big way... December's Consumer Price Index ("CPI") reading came a few weeks ago. And it showed U.S. inflation fell for the sixth straight month. This is an important shift for investors. That's because the move in inflation rates is crucial to whether stocks rise or fall in a given year. We have good reason to expect inflation to fall in 2023. And that means stocks could jump double digits. Let me explain... Inflation peaked at 9%, year over year, in June. It has fallen every month since. And December's seasonally adjusted reading came in at 6.4%. More importantly, the monthly gains have slowed to a crawl since July. The average monthly gain was below 0.2%. And if that trend continues, inflation will only fall further this year. It's a critical trend for investors to understand. That's because stocks have a history of doing incredibly well in years where inflation falls. To see it, I studied the data since 1950. I looked at whether the year-over-year inflation rate rose or fell during each year... and then what stocks did during that year. You obviously can't know in advance what inflation will do. But this is a year where you can be pretty darn certain a further decline is coming. And if that's the case, we can expect double-digit gains in the S&P 500 Index. Take a look... 
Since 1950, the average annual gain for stocks was 9.1%. And the market was higher 73% of the time. That's the baseline. And it's clear that what happens to inflation is crucial for the market... Stocks were higher 77% of the time during years when inflation was down... and it led to 12.2% gains. That's more than double the gains from years when inflation was up. It's also worth noting that inflation rises about as often as it falls. Even more, the six best years in history happened when inflation was falling. And nine of the 12 worst years happened when inflation was on the rise. Inflation trajectory matters for the market. When it's falling, stocks tend to do well. That will likely be the case this year... and it means stocks could have one of their best years on record... with a gain of 25%-plus completely in reach. This isn't the consensus view. Most folks are waiting for the next shoe to drop in the market right now. But stocks already took a beating last year. And this year, the inflation rate looks to keep dropping. That's a favorable setup for stocks, according to history. It's not the only reason to be bullish though. The absolutely brutal year we just finished actually paints a positive view for 2023. Now, brutal is the right way to describe last year. The hits came from all directions. Stocks dropped... bonds dropped... alternatives like gold went nowhere... and anything speculative fell 50% or more. If you're feeling uneasy going into 2023, we get it. But we want to warn you... Now is not the time to give up on your investments... specifically on stocks. The market does lose money from time to time. But according to history, it's darn rare for negative years to stack up. And that means there's a good chance markets will rebound this year. Here are the details... Yes, 2022 was uniquely painful. That's because nearly everything – including bonds – went down, right alongside stocks. But the stock losses themselves aren't so unusual. The S&P 500 Index has had 19 losing years since 1950. That means stocks typically see a down year every four years. Even still, the good times more than make up for those few bad years. The average annual gain over that period was 9.1%. And more important, consecutive losing years haven't happened often. In fact, this has only happened twice (including one run of three losing years) since 1950. You can see it in the chart below... 
Stocks dropped two years in a row in 1973 and 1974. And they dropped for three straight years during the dot-com bust. As you can see above, stocks tend to end up higher the year after a loss. That has happened 83% of the time... And the average gain increased from 9.1% to 15.3%. Even better, the four largest annual gains since 1950 each happened after a losing year. Take a look... 
These are massive returns. And they average out to an incredible 37% gain. When the market falls, it paves the way for future returns. And that means the years that follow have the potential to be some of the best on record. This idea might seem too simple. But the consistency through seven-plus decades of data proves it. Stocks rarely fall for two years in a row. That's because bear markets can't last forever... even if it feels like they will in the moment. Last year was rough. But the bad times won't last forever. History shows stocks are likely to rise in 2023... And it could be a banner year. Good investing, Brett Eversole
Editor's note: That's not the only potential shift coming to stocks. That's why investing legend Dr. Steve Sjuggerud recently stepped forward to discuss a historic reset he believes is about to hit the market – one that could help you earn multiple 1,000% winners. He hosted an online presentation to share the full details. But if you missed it, you can still watch the full replay here...
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