The Bull Market Is Coming: Here’s a Genius Move in 2023

Last year, S&P 500 it produced a negative return of 19%, its worst annual performance since 2008. The market, buoyed by loose monetary policy, reversed course when the Federal Reserve began tightening in response to rising inflation.

After the market experienced a downturn, as it did in 2022, many investors are wondering what the new year will bring. It is best to remain optimistic. With this in mind, here’s a genius move as we look to 2023.

Where are the bulls?

With inflation, measured by the consumer price index, showing signs of cooling, many market watchers are wondering when the central bank will stop raising interest rates and even reverse course. Hopefully that will happen sometime in 2023, which would be a boon for the stock.

Lower interest rates mean lower borrowing costs for consumers and companies, which is considered positive for economic growth and company earnings. Moreover, lower rates make investing in bonds less attractive, pushing capital towards stocks to achieve better returns. These trends could push share prices higher.

This setup paves the way for a potential bull market or a rally of at least 20% for the stock market in 2023. S&P 500 is up 11% over the past three months and over 3% so far this year (as of this writing), which could signal that it’s already starting its march. And that could provide investors with an opportunity.

A person is looking at multiple monitors with financial charts.

Image source: Getty Images.

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Doubtless, the growth of technology stocks were the hardest hit in 2022. Names like Roku and Spotify each saw their share prices fall by more than 65% last year. Even the staunchest supporters of these businesses would question their investment merit after suffering such a huge portfolio hit.

In a rising market, growth stocks should do quite well. But instead of looking at unprofitable businesses, no matter how enticing the revenue might be, it might be a worthwhile strategy to look at companies in this category that are producing positive Free cash flow (FCF).

A prime example that immediately comes to mind is Find it NASDAQ: ETSI). Over the past five years, gross merchandise sales have grown from $766 million in Q3 2017 to $3 billion in Q3 2022 (ended September 30). Margins and profitability increased as the e-commerce market achieved greater volume. According to management, there’s a $466 billion market for Etsy to tap into, which means plenty of room for growth.

Another fast-growing company that is financially sound is PayPal (PIPL -0.38%). The digital payments pioneer has rapidly grown its active user base throughout the depths of the pandemic, a figure that today stands at 432 million. It generated FCF of $1.8 billion in the most recent quarter, a period when peak growth slowed. As online shopping continues to take its share of brick-and-mortar retail, PayPal is well-positioned to benefit.

Neither Etsy nor PayPal are immune to the economic slowdown, especially since their platforms lean towards discretionary purchases, which could be adversely affected by a downturn. But there’s no doubt they’ll be able to handle whatever comes their way, thanks to their strong balance sheets and cash-generating operations.

Adding these stocks to your portfolio ensures that you will gain if the broader market has a rebound year in 2023. Furthermore, their solid fundamentals provide peace of mind.

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Etsy, PayPal, Roku and Spotify Technology. The Colorful Fool has a privacy policy.

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