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Friday, December 9, 2022
Today’s newsletter is from Myles Abroad, senior markets editor at Yahoo Finance. Follow him on Twitter @MylesUdland and on LinkedIn. Read this and other market news wherever you are with the Yahoo Finance app.
Wall Street strategists look to 2023.
And like most years, this year’s outlook contains a degree of similarity from company to company.
But the surprising wrinkle for next year is that many full-year forecasts contain not one, but two separate predictions about the trajectory of the stock market in 2023.
Because not only do a number of companies think stocks will be flat next year, but many strategists are too calling for this bear market to fall to new lows before stabilizing in the second half.
In a note to clients released Thursday, Capital Economics Chief Markets Economist John Higgins wrote: “We suspect the S&P 500 will hit a new cyclical low by spring 2023 as a shallow recession kicks off in the US, before bouncing back to end next year higher than it is now.”
Higgins said the company’s final forecast for the S&P 500 will be finalized after next week’s Fed meeting.
Writing in a note to clients late last month, Goldman Sachs’ equity strategy team wrote: “We expect a lower trajectory for equities in the short term as rates rise. But the tightening cycle is getting worse. will end in May and 2H investors will focus on growth in 2024. Our 3 and 6 month targets are 3600 (-9%) and 3900 (-2%).
In the event of a “hard landing” where the economy tips into a deep recession following the Fed’s rate hike plans, Goldman suspects the damage will be even worse for the stock market.
And when we read the extensive collection of Wall Street forecasts compiled by TKer’s Sam Ro over the past weekend, the theme of an early 23 selloff before a more constructive environment emerges later next year comes back again and again.
JPMorgan strategists “expect the S&P 500 to retest this year’s lows as the Fed tightens too much on weaker fundamentals.”
At RBC, Lori Calvasina’s equity strategy team wrote: “We believe the path to 4,100 will likely be choppy in 2023, with a potential retest of October lows early in the year as forecasts profits are reduced, Fed policy is moving closer to a transition (equities tend to fall ahead of final cuts), and investors are digesting the start of a tough economy.”
At Morgan Stanley, Mike Wilson’s team wrote: “After what remains of this current tactical rally, we see the S&P 500 discounting earnings risk by 23 in Q123 via a price low of around 3,000 at 3,300. We believe this occurs before the eventual trough in EPS, which is typical of earnings recessions.”
Brian Belski’s team at BMO wrote: “[The] The market is expected to experience periods of heightened volatility (in both directions) in 1H’23 until headline inflation levels approach historical norms throughout the second half of the year. In fact, we think it’s entirely possible for the S&P 500 to retest its current low cycle or even establish a new one – although if that happens it probably won’t be much lower than the previous one. , in our view, and in no way alters our outlook.”
The pivot point for many of these forecasts, of course, is when the US economy enters a recession. And most Wall Street economists see the first half of next year as the tipping point for the current economic expansion.
However, as Belski’s team reported to BMO, the calendar year the economy went into recession saw the S&P 500 rise 5.8% on average. And as investors have found this year, waiting for the punch is the hardest part in the markets.
Why a recessionary economy sets the stage for better stock market performance depends on the reaction of the Fed. If investors have learned one lesson in 2022, it’s that higher rates are a problem for most stocks.
And in a recession, the Fed is more likely to cut interest rates – or at least stop raising them aggressively.
Investors will find out next week if Fed Chairman Jay Powell agrees.
And so Wall Street’s two-part forecast for the year ahead looks more likely to materialize.
What to watch today
8:30 a.m. ET: PPI Final Demandmonth-over-month, November (0.2% expected, 0.2% in prior month)
8:30 a.m. ET: PPI excluding food and energymonth-over-month, November (0.2% expected, 0.2% in prior month)
8:30 a.m. ET: PPI excluding food, energyand trade, month-over-month, November (0.1% expected, 0.2% in prior month)
8:30 a.m. ET: PPI Final Demandyear-on-year, November (7.2% expected, 8.0% in prior month)
8:30 a.m. ET: PPI excluding food and energyYoY, November (5.9% expected, 6.7% in prior month)
8:30 a.m. ET: PPI excluding food, energyand trade, year-on-year, November (4.7% in the previous month)
10:00 a.m. ET: Wholesale Salesmonth-over-month, October (0.3% in prior month)
10:00 a.m. ET: Wholesale inventorymonth-over-month, October final (0.8% in previous month)
10:00 a.m. ET: University of Michigan SentimentDecember Preliminary (56.9 expected, 56.8 in previous month)
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