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Despite a looming recession in the U.S., Deutsche Bank expects global equities to drop sharply by mid-2023. According to Deutsche Bank chief economist David Folkerts-Landau, major stock markets will plunge 25% when the U.S. recession hits but then recover completely by year-end 2023, assuming the recession lasts only several quarters.
In 2023, Goldman Sachs Research predicts the bear market in stock markets will intensify before giving way to more hopeful signals. Goldman Sachs Research predicts that the global stock market will enter its "hope" phase later this year. Recovery usually begins during recessions when valuations rise. In the past, investing in stocks after the bottom produced better returns than investing before it: average 12-month returns are higher after the bottom than before. Therefore, Goldman Sachs strategists think it's too early to position for a bull market transition.
Unfortunately, Federal Reserve interest rate hikes and high inflation aren't going anywhere in the near future. The U.S. economy could do much better in 2023 if the Fed controls inflation and navigates a soft landing.
According to CME Group, there is an 86% chance of another Fed rate rise by June 2023. The first quarter of 2023 is expected to see a 1.7% rise in earnings for the S&P 500, but only a 1.7% decline in the fourth quarter of 2022.
With good earnings momentum, U.K. equities offer significant value in a currently undervalued currency. U.K. listed equities should benefit from nominal growth in an undervalued market. Some of the most likely beneficiaries will be high-quality, cash-generating companies, which form a significant part of our portfolios.
The stock of Amazon.com (AMZN) has had a terrible year so far in 2022, but Wall Street says the company is poised to outperform next year.
According to Doug Anmuth, a J.P. Morgan analyst, Amazon stock is one of the firm's top 2023 ideas. AMZN's price target of $145 was reiterated, along with an Overweight recommendation (buy).
A "mild" recession is expected to begin in the second half of 2023 as the Federal Reserve's efforts to tame inflation weigh on consumer spending and investments.
According to Gapen, the U.S. economy is expected to suffer from slower consumer spending by December 2023. Despite the continued decline in inflation, Gapen doesn't see inflation reaching the Fed's 2% target in 2023.
Bank of America reports that a large majority of Wall Street money managers expect stagflation in 2023, similar to the 1970s.
92% of funds managers in the bank's most recent survey predict low economic growth and high inflation in 2023, while only ten percent anticipate a bullish "goldilocks" scenario in which the economy avoids recession.
Rising interest rates and slowing growth further dampen the outlook for fourth-quarter U.S. earnings after a disappointing third quarter.
IBES data from Refinitiv showed analysts were expecting S&P 500 earnings to decline 0.4% year over year in the fourth quarter. According to their forecast on Oct. 1, the increase would be 5.8%.
Ethan Harris, an economist at the University of Texas at Austin, says the Federal Reserve might not be able to control inflation without tipping the U.S. economy into recession.
In Harris's projections, the Federal Reserve will increase interest rates by another 0.5% in December and February and another 0.25% in March, bringing the terminal fed funds rate range to 5%-5.15 percent.
JP Morgan Asset Management recently released its Long-Term Capital Market Assumptions (LTCMAs). As a result of lower valuations and higher yields in asset markets today, these projections provide a 10- to 15-year view of risks and returns. Over the next 10–15 years, a USD 60/40 stock-bond portfolio is expected to generate an annual return of 7.20%, up from 4.30% last year.
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Alpesh Patel OBE
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