A brutal year for US stock market coming to an end, but investors hoping to see a brighter 2023 may be out of luck.
Although hopes of moderate inflation and prospects for rate hikes are smaller, Federal Reserve Supported stocks in recent weeks, the slight rally quickly fizzled out as Wall Street weighed the possibility of a recession next year.
The S&P 500 is down more than 20% year-to-date, while the Dow Jones Industrial Average is down more than 3,800 points. Meanwhile, the tech-heavy Nasdaq Composite fell about 33%.
But according to James Demmert, chief investment officer at Main Street Research, the bear market is likely to continue into 2023, after Fed Chairman Jerome Powell indicated last week that interest rates could move higher than expected. previously guessed.
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“The Federal Reserve remains committed to controlling inflation by tightening monetary policy, which, as Jerome Powell emphasized in his press conference, is not good news for the stock market,” Demmert said. and support the bear market to continue into 2023.”
Fed policymakers voted last week to raise the benchmark interest rate by 50 basis points to around 4.25% to 4.5%, slowing their campaign to cool the economy amid There are early signs that persistently high inflation is finally starting to ease.
However, officials also offered a roadmap for aggressive rate hikes for next year: new economic projections released after the two-day meeting showed policymakers expected a rate hike. to 5.1% in 2023, much higher than the 4.6% that officials last predicted in September, according to the Federal Open Market Committee (FOMC) dot chart of expectations. of each member.
“The Committee anticipates that a sustained increase in the target range will be appropriate to achieve a sufficiently restrictive monetary policy stance to bring inflation back to 2% over time,” the FOMC said in a statement. his father.
Quarterly projections suggest that the US central bank will not cut rates until 2024, at a rate of about 4.1%.
Officials also point out that economic growth will slow significantly next year and the unemployment rate will rise significantly higher to 4.6 percent as rate hikes bring the US to the brink of recession. Depression. The Fed expects unemployment to continue to soar through 2024 and 2025 as higher interest rates continue to take their toll by driving up borrowing costs.
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Like many others on Wall Street, Demmert predicts the Fed will trigger a recession in 2023 with sharp rate hikes, as inflation remains well above the 2% target set by the US central bank despite although consumer prices fell slightly last month.
“Our main message to investors is to be cautious,” Demmert said. “The Fed is trying to engineer a gentle economic landing that in our view is highly likely to fail and trigger a recession in 2023. The Fed wants inflation to stabilize at 2% and it’s hard to imagine that happening without recessionary policy and much higher unemployment.”
