The top four banks are looking at the crystal ball
Traders operate under the New York Stock Exchange. – AFP
The first three weeks of 2023 have removed the carnage that international institutions have seen in the past year, when almost all markets ended in the red. The benchmark S&P500 index on the New York Stock Exchange, which has lost nearly 20 percent in the past year, ended its best week in two months last week, and the gains continued this week.
So what are the symptoms?
The main driver has been the latest US inflation data, which shows the persistent decline in prices that has become the scourge of stock markets in the years 2022. Along with this, the first results from the earnings season have shown that companies are working. against the central bank’s policy of raising interest rates, which has been necessary to reduce inflation. The winter in Europe has also helped to keep the stock markets in the continent cool, as strong electricity prices have helped to keep prices from rising.
However, the conflict in Ukraine, the resurgence of Covid-19 in China, and the continued tightening of central banks continue to disrupt stock markets this year, with the potential for a recession.
So what will it be like in 2023?
Several of the world’s top financial institutions have released their views on how markets will fare this year. Khaleej Times takes a look at some of their predictions.
FILE – The Goldman Sachs logo is seen above the floor of the New York Stock Exchange. – AP
According to the US bank Goldman Sachs, the US must avoid a recession. According to the bank’s research, the increase in personal income (PCE) is expected to decrease from 5 percent now to 3 percent at the end of 2023, with a change of 0.5 percent in the unemployment rate. In order to slow the growth of money, the Fed should raise the 125 points to 5-5.25 percent with no rate cut expected this year, a report from Simply Wall Street said.
Real earnings recovered at the end of last year from a decline in the first half of 2022 when the initial volume shocked the housing market.
Now that things have cooled down in the US labor market, Goldman Sachs predicts that employment growth will remain constant and vacancies will fall to levels that will slow wage growth to meet inflation targets.
The JP Morgan Chase building on Park Avenue in New York. – AFP
JP Morgan is more pessimistic than Goldman Sachs, expecting the most developed countries to go into trouble, but their comment is consistent with their belief that the recession is slowing down, Simply Wall Street said in a report.
The market’s selloff has left some stocks with strong earnings potential that can trade at much lower prices.
If inflation becomes self-regulating in 2023, central banks will stop raising rates, and recessions, which do occur, will be smaller. JP Morgan has identified signs that inflation is slowing and will continue to do so in 2023.
Turning to the equity market. The risk and reward is in a very good position compared to 2022 because the market should have been at a very bad price at this point. So while the downside is still to come, JP Morgan thinks we’re not too far off.
Morgan Stanley headquarters in New York City. – AFP
The first quarter of 2023 has the energy mix for the fourth quarter of 2022 but the yield curve indicates a possible recession next year, according to Morgan Stanley research.
The bank believes that in early 2023, earnings will fall, bringing the stock market with it. But sectorial leadership from the financial, industrial and equipment sectors shows otherwise.
The economy is doing very well, which means that the coming “recession” will disappear for another quarter. Earnings are expected to slow, disappointing bear markets. With continued improvement in inflation in the mix, you have the ingredients for a strong first quarter.
Morgan Stanley’s head of Applied Equity Advisers, Andrew Slimmon, says that the consensus as early as 2023 will be supported by the fall in investment. As inflation, interest rate hikes, inventory disruptions and household spending declines through quarterly earnings reports, the market is expected to fall in this direction.
The Swiss flag flies above the Credit Suisse logo in Bern, Switzerland. – Reuters
Credit Suisse has predicted that the UK and the Eurozone will enter into crisis this year, while China will grow slowly. Inflation will slow economic growth in 2023.
Inflation is expected to moderate in 2023, but will remain above the central bank’s target.
2023 will be a ‘story of two halves’ as interest rate hikes remain a concern in the first half of 2023, while the stock market should be stable and the fixed income and low debt sectors should be healthy. As central banks transition from rate hikes, larger stocks should receive reserves in the second half of the year.
Fears of a global recession may cause the US dollar to strengthen in early 2023. As fiscal policy eases and risks to foreign growth diminish, the dollar will naturally recover and stabilize.
Credit Suisse’s opinion is similar to the comments of others. The Eurozone and the UK are likely to slow down while the US is expected to escape.
Interestingly, Credit Suisse has stressed that climate change presents a unique scenario for investors to deal with. West, East and South have been very different in terms of economic policy and political ideology.
The strained political relations and the Covid-19 pandemic have changed the world trade system and have shifted the focus of international trade from trying to control prices, to now ensuring that the integrity of the supply chain and world relations is maintained.