The outlook for 2023 is a bit better for equities, but the first half looks downright ugly. Wall Street strategists reveal their outlook for next year. There is a somewhat mixed opinion that the first half could be particularly difficult, with the market possibly testing its October lows. Then there is an early recovery in the second half. Some experts expect the market won’t end much higher than it currently is by the end of 2023. “We’re all saying the same thing,” said Lori Calvasina, chief strategy officer US stocks at RBC Capital Markets. “We will retest the lows. Earnings will decline.” Calvasina expects the S&P 500 to end the year at 4,100. “My flat year thesis is kind of a consensus. I think the median strategist is around 4,000,” she said. declared. “If there’s a risk it’s upside, not downside after the bad year we’ve had.” The S&P 500 is down about 15% in 2022. Strategists also see a period in which Federal Reserve tightening could tip the economy into a recession early next year. Views vary on how deep such a downturn could be, with some expecting the central bank to still be able to pull off a soft landing. “Our view of risky markets in 2023 consists of two periods: market turbulence and economic decline that will force interest rate cuts, and the economic and asset recovery that will follow,” Marko Kolanovic wrote. of JPMorgan in its outlook. The strategist expects the lows to be retested due to what could be a significant decline in earnings as interest rates rise. “We’re inclined to think that could happen by the end of the first quarter,” he noted. Bank of America chief investment strategist Michael Hartnett sees a similar divide for next year. “We remain bearish risk assets in the first half, poised to turn bullish in the second half as the narrative shifts from inflation and interest rate ‘shocks’ of 22 to recession and credit ‘shocks’ in the first half of 23,” he wrote in his outlook. Jeff Kleintop, chief global investment strategist at Charles Schwab, expects a shallow recession has already begun. He predicts the first half will be worse for stocks than the second half, with volatility similar to the past six months. “We see positive returns for the year, although elevated volatility will continue over the next few months,” he said. “You will pay the price for a better year next year.” A market scenario that rhymes Calvasina said the clues for the coming year could be found in the period 2003, and how the market behaved at that time. “If you look at the playbook, that’s about when the stock market should take a break,” she said. “The market pulled back in December, and it pulled back in March when it reached the final low.” In 2003, the market was emerging from the tech bubble of 2000. Now, the market is trading outside the post-pandemic recovery. “They were both large-cap growth bubbles, driven by spending,” she said. “There are a lot of ways the market rhymes with this period.” Calvasina said investors could already be anticipating the turmoil in the first half. “Everything that everyone talks about for the next year, you start reacting in December,” she said. Clarity on the economy should also come in the first quarter, and companies could help provide important insights into the earnings season. “We need to see how confident companies really are. I think we’ll be more aware of that in the coming months. At that point, we’ll have some visibility into 2023,” she said. Calvasina said the degree of pessimism towards the market is a contrarian positive sign for equities. “If companies stay calm and don’t lay off too many people, I see a case of confusion,” she said. “I can see the seeds of the upside. I can also see the seeds of the downside.” How to play it Kleintop said he used a hard rule in 2022 on what stocks to hold, and that trend should continue to work next year. “If you look at this year, it’s been a mantra,” he said. “It’s not a question of sector or country. It’s a question of quality. Companies that have a lot of cash flow relative to their valuations and those that pay high dividends. These strategies have worked all the time. ‘year.” Kleintop said holding quality names will help investors avoid worrying about where the market will bottom or when to change strategy. “If you want to be in tech, just buy the biggest dividend payers. They’ve outperformed,” he said. “The other general theme is international. We’ve finally started to see international equities outperform this year.” If the dollar starts to weaken, it would also be a tailwind for foreign equities, he added. Calvasina expects small caps to be an area of outperformance, and she still sees value in energy and financials. “If I could just trade and buy one thing right now, it would be small caps,” she said. Traditional technology, such as semiconductors and software, are also areas she studies, but not Internet names. “Everything is traded on the 10-year [ Treasury]. If you get lower yields, you need to have growth in your back pocket,” she said. “Don’t buy all the growth. Just be very selective. …I’ve been selectively looking at the names of the technology as the rebound plays out.”
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