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Wall Street’s surprising consensus forecast for 2023: Morning Brief


This article first appeared in Morning Brief. Get the Morning Summary delivered directly to your inbox Monday through Friday by 6:30 a.m. ET. Ordered

Friday, December 9, 2022

Today’s news is from Myles Udland, senior market editor at Yahoo Finance. Follow him on Twitter @MylesUdland and more LinkedIn. Read this and more market news on the go with Yahoo Finance App.

Wall Street strategists are looking ahead to 2023.

And like most years, this year’s outlook has a degree of similarity across companies.

But what’s surprising for next year is that many of the full-year forecasts contain not one but two distinct predictions about the path of the stock market in 2023.

Because not only do some companies think stocks will move sideways next year, but so do many strategists. also calls for this bear market to drop to new lows before stabilizing in the second half of the year.

In a note to clients published on Thursday, Capital Economics chief market economist John Higgins wrote: “We suspect that the S&P 500 will make new cyclical lows in the spring of 2023 when a shallow recession is taking place in the US, before the recovery comes to an end. next year higher than now.”

Higgins said the company’s final forecast for the next S&P 500 will be finalized after next week’s Fed meeting.

Writing in a note to a client at the end of last month, Goldman Sachs Equity Strategy Team wrote: “We expect equities to trend lower in the near term as interest rates rise. However, the tightening cycle will end in May and investors in the second half of the year will shift their focus to growth.” in 2024. Our 3- and 6-month targets are 3600 (-9%) and 3900 (-2%).

In the event of a “hard landing” when the economy slips into a severe recession due to the Fed’s rate hike plan, Goldman suspects the damage will be even worse to the stock market.

Goldman Sachs strategists see stocks falling in the first half of the year before moving sideways in 2023. (Source: Goldman Sachs)

Goldman Sachs strategists see stocks falling in the first half of the year before moving sideways in 2023. (Source: Goldman Sachs)

And as we read through the rich collection of Wall Street forecasts created by Tker’s Sam Ro last weekendThe theme of an early 23rd sell-off before a more constructive environment emerges late next year is repeated again and again.

Strategists at JPMorgan, “expect the S&P 500 to retest this year’s lows as the Fed tightens excessively on weaker fundamentals.”

At RBC, Lori Calvasina’s equity strategy team wrote: “We think the road to 4,100 is likely to be tough in 2023, with a retest of October lows likely early in the year. as earnings forecasts cut, Fed policy gets closer challenge.”

At Morgan Stanley, Mike Wilson’s team wrote: “Following what remains of this current tactical rally, we see the S&P 500 reduce earnings risk ’23 at some point in Q123 through the highs. low ~3,000-3,300. We think this precedes the bottom line in EPS, which is typical of an earnings recession.”

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 7, 2022. REUTERS/Brendan McDermid

Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., December 7, 2022. REUTERS/Brendan McDermid

Brian Belski’s team at BMO wrote: “[The] The market is likely to experience periods of greater volatility (in both directions) in the first half of 2023 until overall inflation tends to fall closer to historical standards throughout the second half of the year. In fact, we believe the S&P 500 could quite well retest the current cycle low or even establish a new one — although if that happens it is unlikely to be much lower than that. previous cycle, in our view and in no way changes our opinion.”

And such.

The crux of many of these forecasts, of course, is when the US economy falls into a recession. And most economists on Wall Street see the first half of next year as the tipping point for the current economic expansion.

Though, as Belski’s team at BMO has marked, the calendar year in which the economy entered recession has seen the S&P 500 gain an average of 5.8%. And as investors have seen this year, waiting for the punch is the hardest part of the market.

Even in years when the economy enters a recession, the stock market still tends to increase by nearly 6% on average.  (Source: BMO Capital Market)

Even in years when the economy enters a recession, the stock market still tends to increase by nearly 6% on average. (Source: BMO Capital Market)

Why a slowing economy sets a target for better stock market performance depends on how the Fed will react. If investors have learned a lesson in 2022, it’s that higher interest rates are a problem for most stocks.

And during a recession, the Fed is more likely to cut rates — or at least stop raising rates sharply.

Investors will find out next week if Fed chair Jay Powell agrees.

And whether Wall Street’s two-part forecast for next year is likely to succeed.

What to watch today

Economy

  • 8:30 a.m. ET: Final PPI Demandmonthly, November (0.2% expected, 0.2% last month)

  • 8:30 a.m. ET: PPI excludes food and energymonthly, November (0.2% expected, 0.2% last month)

  • 8:30 a.m. ET: PPI Excludes Food, Energyand Commerce, Monthly, November (0.1% expected, 0.2% last month)

  • 8:30 a.m. ET: Final PPI Demandyearly, November (7.2% expected, 8.0% last month)

  • 8:30 a.m. ET: PPI excludes food and energyyear-over-year, November (5.9% expected, 6.7% last month)

  • 8:30 a.m. ET: PPI Excludes Food, Energyand Trade, compared to the same period last year, November (4.7% in the previous month)

  • 10:00 a.m. ET: Wholesale and commercial goodsmonthly, October (0.3% in the previous month)

  • 10:00 a.m. ET: Wholesale inventorymonthly, end of October (0.8% in previous month)

  • 10:00 a.m. ET: University of Michigan AffectionPreliminary December (56.9 expected, 56.8 last month)

income

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