What will drive stock market in 2023
2022.12.28 01:16
What will drive stock market in 2023
Budrigannews.com – Investors in U.S. stocks are eagerly anticipating the end of 2022, a brutal year marked by market-punishing rate hikes initiated by the Federal Reserve to contain the sharpest inflation in 40 years.
With just a few trading days remaining in 2022, the is on track for its biggest drop in a calendar year since 2008. The is down nearly 20% year to date. The devastation has been even worse for the, which has lost nearly 34% of its value so far this year.
The once-exuberant shares of Amazon.com Inc. (NASDAQ:), among other notable casualties, which have lost approximately 50% this year, whereas Tesla’s (NASDAQ:) Inc. are down about 70%, and Facebook’s parent company Meta Platforms Inc. About 65% of the shares have fallen. Energy stocks, on the other hand, have defied the general trend by soaring in value.
As 2023 begins, inflation and the Fed’s level of aggressiveness in attempting to contain it will likely continue to be important factors in equity performance. However, investors will also be keeping an eye on the effects of higher interest rates, such as how the economy is affected by tighter monetary policy and whether it makes other assets more competitive with stocks.
The U.S. stock market’s major themes for 2023 are outlined below.
As the new year gets underway, perhaps the most significant question that will influence stock prices is whether many investors anticipate a recession in the economy.
Stocks may be set for another decline in the event of a recession beginning next year: According to historical data, a bear market has never reached its lowest point prior to the onset of a recession.
According to Truist Advisory Services, the S&P 500 has experienced an average decline of 29% during recessions since World War II. However, those declines have typically been followed by a significant rebound.
Additionally, investors are concerned that estimates of corporate earnings may not have fully taken into account a potential slowdown, resulting in additional stock market losses.
According to Refinitiv IBES, consensus analyst estimates anticipate a 4.4% increase in S&P 500 earnings in 2023. However, according to Ned Davis Research, earnings decrease by an average annual rate of 24% during recessions.
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In contrast to the low-yield environment that dominated for more than a decade and gave rise to the acronym “TINA,” which means “there is no alternative” to stocks, the Fed’s rate hikes have increased bond yields and created competition for stocks.
After reaching their highest level in over a decade in October, yields on the 10-year Treasury Inflation-Protected Securities (TIPS), which are also referred to as real yields due to the fact that they do not take into account anticipated inflation, have recently hovered around 1.5 percent.
Despite this, some investors have pointed out that stocks performed well during times in the past when yields were even higher.
Value stocks, which are typically defined as those that trade at a discount based on metrics like price-to-earnings or book value, have performed better over the past year than tech and other growth shares, reversing trends that had been in place for much of the previous decade.
The question is whether value, which is more heavily represented by financial, energy, and defensive groups, could be poised for another year of outperformance in light of higher yields and doubts regarding profit growth standing to pressure tech and growth stocks.
This year, the rise of the dollar against other currencies hurt the profits of many U.S. businesses, making it more expensive for multinational corporations to convert their profits back into their home currency.
In recent weeks, the dollar has lost some of those gains, and whether or not the trend continues would be influenced in part by investor perceptions of how hawkish the Fed will be in comparison to other global central banks.
