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CNN
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“It’s time for Wall Street strategists to pack their clients’ email inboxes with 2023 market predictions.
Much of what revolves around this time of year is fascinating and painstakingly researched, but much is also debatable. It’s simply impossible to predict what will happen in the next 365 days and how it might affect the markets: At the end of last year, analysts at Goldman Sachs predicted that the S&P 500 would close 2022 at 5,100 points. Morgan Stanley predicted a more bearish 4,400. The S&P 500 closed at 3,934 on Friday.
Market analysts are not alone. As International Monetary Fund economist Prakash Loungani concluded in a report on the accuracy of economic forecasts, “the record of failing to predict recessions is virtually unblemished.”
Still, that doesn’t stop experts from trying. Here are some of the main themes that emerge when analysts peer into their crystal balls.
Mild recession: Will the US fall into recession in 2023? Analysts avoid or hedge on the “R” word, but generally see a slowdown in growth, a softening of the economy and even a “rolling recession.”
Truist’s base case is for a US recession in 2023, “although US economic growth is expected to remain stronger relative to global peers”. Wells Fargo calls for a “moderate recession in 2023” based on a “resilient labor market, slowing inflation and lower interest rates.”
A report by JPMorgan Asset Management says that “while a recession in 2023 is quite possible, it should be mild if it occurs. Bank of America Global Research and Citi Global Wealth also predict a “moderate recession.”
Liz Ann Sonders, chief investment strategist at Charles Schwab, writes with Kevin Gordon in her 2023 outlook that the recession will hit different parts of the economy, but not all at once. “Even though the pain in different segments of the economy is prolonged over a longer period of time, you have positive offsets to the areas where there is weakness,” he says.
This will lead to a bumpy market. “U.S. equity returns will be driven by gains against a backdrop of heightened market volatility,” JPMorgan analysts wrote.
Inflation will drop… A bit: Analysts appear to believe that a mild recession in the first half of the year will finally cool skyrocketing inflation, even if it remains above the Federal Reserve’s 2% target level. Still, most economists think it will be enough for the central bank to ease up on painful interest rate hikes.
“We believe the recession and fading inflation shocks of the past 18 months will allow inflation to fall below 3% on an annualized basis by the end of 2023,” Wells Fargo analysts wrote.
JPMorgan analysts believe the Fed will end its rate hike regime by the second quarter of the year. “With inflation continuing to weaken and fiscal policy likely to be on hold, the Fed is likely to end its tightening cycle early in the new year and inflation could begin to decline before the end of 2023,” they write.
Markets are recovering slightly: All this will lead to a more stable and prosperous second half of the year for the markets, analysts believe, and a strong year 2024.
By early 2024, JPMorgan analysts write, the US economy could return to where it was at the end of 2010; slow growth, low inflation, moderate interest rates and strong corporate margins. “While this may not present an exciting prospect for the average American worker or consumer,” they write, “it is an environment that could be very positive for financial markets.”
“In short,” says Sonders, “worse than better.”
Americans’ wealth continued to decline in the third quarter as stock prices plunged over the summer — but many Americans still have a healthy financial cushion compared to pre-pandemic, my colleague Tami Luhby reports.
The net worth of households and non-profit organizations fell by $400 billion to $143.3 trillion in the third quarter. The value of household stocks fell by $1.9 trillion, while their home holdings rose by $700 billion, according to Federal Reserve data released Friday.
The decline comes after their fortunes fell by more than $6 trillion in the second quarter, also largely due to a drop in stock prices. Federal Reserve data are not adjusted for inflation.
The third quarter was brutal for stocks. The S&P 500 fell 5.3% during that period, though it has rebounded since then.
Home prices, meanwhile, rose just 0.1% in the third quarter compared with the previous quarter, according to the Federal Housing Finance Agency’s home price index.
Household debt rose at a seasonally adjusted annual rate of 6.3% in the third quarter, slower than in the previous quarter. Home mortgage debt rose 6.6%, while non-mortgage consumer credit jumped 7.0%, both at a slower pace than in the second quarter.
Bottom Line: Americans are unhappy with their financial situation. About half say it’s worse than a year ago, while about a third say they’re in the same financial shape, a new CNN poll by SSRS found. Only 16% said they were better off now.
In a December 2021 CNN survey, only a third said their finances had worsened over the previous year.
Just two months after British markets suffered their worst collapse since the global financial crisis, the British government is promising to significantly ease financial regulation in a bid to bolster the country’s banking and insurance industries against growing competition from cities like Amsterdam and Paris, my colleague Julia Horowitz reports.
Britain’s Treasury unveiled more than 30 measures on Friday, dubbed the “Edinburgh Reforms”. These include a push to make it easier for companies to list shares in London, a review of short-selling regulations and a mandate for regulators to consider UK growth and competitiveness when setting rules.
“We are committed to securing the UK’s status as one of the most open, dynamic and competitive financial services centers in the world,” British Chancellor of the Exchequer Jeremy Hunt said in a statement.
The effort was initially billed as “Big Bang 2.0” – a nod to the rapid deregulation of Britain’s financial markets under former prime minister Margaret Thatcher in 1986. But ministers have backed away from that language as reforms are expected to be more gradual. .
The changes are a bid to preserve London’s role as a global financial center after Brexit, which, along with political turbulence, has increased uncertainty for companies thinking about where to invest.
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