2023- What The Experts Expect
Should you be optimistic this year?
January 11, 2023
There isn't a lot of optimism for the markets looking ahead (according to the 'experts').
Here is what the professionals are expecting in 2023:
Bank of America
With inflation, the dollar and Fed hawkishness peaking in the first half of 2023, markets are expected to tolerate more risk later in the year. The S&P 500 typically reaches its bottom six months ahead of the end of a recession, and as a result, bonds appear more attractive in the first half of 2023, while the backdrop for stocks should be better in the latter half.
We expect the S&P to end the year at 4,000 and S&P earnings per share to total $200 for the year.
This year’s aggressive rate hikes should hit the world economy mainly in 2023.
We expect advanced economies to slip into recession, and we forecast global growth at just 1.7%, one of the weakest years for the world economy in 40 years.
We recommend bonds over stocks, as well as a healthy allocation to cash.
BlackRock Investment Institute
In equities, we look to lean into sectoral opportunities from structural transitions – such as healthcare amid aging populations – as a way to add granularity even as we stay overall underweight. Among cyclicals, we prefer energy and financials.
We expect new lows for equities in 2023. The 2022 correction was mostly valuation-driven, and we expect 2023 to be all about earnings, supporting higher realized volatility.
In equities we take off the European underweight, and shift it to the US. We go long China and stay underweight in Asia excluding China. We reduce the UK equity long to keep the overall level of equity risk unchanged. For US sectors we remain defensive: long healthcare and utilities against industrials and financials.
In the recovery period, we will also seek a re-entry opportunity in cyclical growth industries, as value equities may prosper when supply pipelines are unable to meet revived demand.
Equity markets are projected to move higher in the near term, plunge as the US recession hits and then recover fairly quickly.
We see the S&P 500 at 4,500 in the first half, down more than 25% in the third quarter, and back to 4,500 by year end 2023.
Markets are now pricing in a more dovish Federal Reserve, signalling an expectation that the US central bank will begin lowering its funds rate by the end of next year. Our economists, by contrast, don’t expect any rate cuts in 2023.
If the US economy turns out to be more resilient than anticipated and inflation stickier in 2023, stock markets and Treasuries could fall in price.
HSBC Asset Management
For equities, we think price to earnings ratios in developed markets have scope to fall given where bond yields are. But the big risk remains corporate earnings downgrades, which will probably be a driver of weak equity market performance.
The convergence between the US and international markets should continue this year, both on a dollar and local currency basis. The S&P 500 risk-reward relative to other regions remains unattractive.
Continental European equities have a likely recession to negotiate and geopolitical tail risks, but the euro zone has never been this attractively priced versus the US.
Equities this year are headed for continued volatility, and we forecast the S&P 500 ending this year roughly where it started, at around 3,900. Consensus earnings estimates are simply too high.
European equities could offer a modest upside, with a forecasted 6.3% total return over 2023 as lower inflation nudges stock valuations higher.
The economy in developed markets is under growing pressure as monetary policy works with a lag, and we expect this will translate into pressure on corporate profits.
We therefore maintain an underweight in equity positioning, disfavour cyclical sectors, and prefer quality across our asset allocation portfolios.
Schroders expects 2023 to usher in a turning point for global equities after the sharp corrections last year. Valuations are now at more attractive levels where investors may look to quality companies across markets for opportunities when the time is ripe, subject to recessionary risks and currently over-optimistic expectations on corporate earnings.
Fair value for the S&P 500 currently reads at 3,650 based on our inflation moderation valuation framework. But we expect negative EPS growth in the first quarter, a Fed pivot in the second, China re-opening in the third and rising US recession risk in the fourth.
This should see the S&P 500 trading in a wide range of 3,500 to 4,000, around that 3,650 fair value. Ultimately, we expect the S&P 500 to end 2023 at 3,800.
Non-US equities now trade at 12.17 earnings, 20% below their historical median average of 14.94. The same is true under a shorter horizon, as US stocks trade on par and at 7% above their five- and 15-year median levels.
Meanwhile, non-US stocks trade 11% and 12% below their five- and-15-year median levels, respectively.
While risk is still likely to be elevated in the near term, if a policy pivot turns market pessimism to optimism and risk aversion declines, our view is that segments with decent fundamentals and attractive valuations may enter a repair phase more quickly than expensive areas.
Domestically oriented US small caps represent one of these possibilities.
The Portfolio Platform
This is looking like it should be a good year for us. General consensus is that the US is now fairly priced rather than good value, and that there could be a little more room to fall before a recovery later in the year.
Most funds will struggle to make much this year. We feel the real value still remains in Europe with the FTSE100 and DAX looking low. Having said that, even they are unlikely to return double figures this year.
Our traders will buy, sell out, go short etc. which gives us a huge advantage in a year where stocks are likely to finish only a few per cent higher than where they started.
We’re excited about outperforming everyone else this year.
Our initial estimated 2023 S&P 500 range is 3,400 to 4,300 relative to the November closing level of 4,080. This is consistent with the average annual spread of 27% between a market high and low since 1950. The wide range should provide tactical opportunities.
Stocks are pricing in only 41% and 80% probabilities of a recession in the US and Europe, respectively. Weak growth and earnings drag the market lower before a fall in rates helps it bottom at 3,200 in the second quarter and lifts it to 3,900 by the end of 2023.
Last year’s bear market has improved our outlook for global equities, though our model projections suggest there are greater opportunities outside the US.
Wells Fargo Investment Institute
We expect earnings to contract in 2023 as the recession leads to declining revenues and profit margins. Valuations should rebound in 2023 to lift equity markets by year-end as early cycle dynamics begin to take hold.
Our comment and our portfolios right now:
It seems like optimism isn't a word associated with most 'expert opinions' looking forward. For 'long only' investors- this spells trouble.
Over the last quarter the traders on TPP have profited on their mid term 'buy' positions, as well as their short term positions both on the 'buy' and 'sell' side of the market.
As we write this article right now, a SELL BIAS is building on TPP.
Our traders focus on the markets that everyone knows and can relate to. Whether it's the FTSE, CAC, DAX, Nasdaq or S&P (amongst others) there are always opportunities, regardless of the market climate.
Looking forward to 2023 will their be strong directional movements either way?
However, if our traders can evolve with an ever changing market climate- we would expect 2023 to be an excellent one for us.
We'll only ever let traders with extensive track records showcase their strategies on our platform. It gives us confidence, and we hope it provides the same comfort for our clients.
If you are interested in building a portfolio that aims to yield a minimum of 2 x market benchmark performance on a per annum basis, by utilising the elite trading strategies showcased on TPP- contact our team today.
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