As central banks combat inflation, China restarts its economy, and the Russian invasion of Ukraine persists, investors should expect some volatility in the first half of 2023, according to Wall Street predictions.
The S&P 500 is expected to end 2023 at 4,078 points — about 6% higher than it ended 2022 — according to 22 strategists polled by Bloomberg.
Economists also expect the Federal Reserve’s interest rate hikes to slow.
“We believe that a period of sub-trend growth is inevitable, and recession risks are high as the lagged effects of tighter monetary policy work their way through the economy,” Brian Rose, Senior U.S. Economist at UBS Global Wealth Management, told The Guardian.
Michael Antonelli, Managing Director and Market Strategist at investment bank Baird, predicted the Fed would halt the hikes in February and markets would see gains in 2023. “The stock markets are all about, ‘Are things getting better or are things getting worse?’ I think they will get slightly better next year,” Antonelli told Yahoo Finance Live.
But Deutsche Bank said in its 2023 World Outlook that financial markets will be hit with an economic downturn. “We see major stock markets plunging 25% from levels somewhat above today’s when the U.S. recession hits, but then recovering fully by year-end 2023, assuming the recession lasts only several quarters.”
And, the head of the International Monetary Fund (IMF), Kristalina Georgieva, suggested that with “the three big economies — the U.S., EU, and China — all slowing down simultaneously,” 2023 would be “tougher than the year we leave behind.”
With such a global downturn, central banks may pause the interest rate hikes implemented in 2022. Nikolaj Schmidt, Chief International Economist at investment management firm T. Rowe Price, predicts this may happen in the second half of 2023.
“We see the world plunging into a global recession in 2023. The recession is going to be the result of the immense monetary tightening the central banks have administered over the past 12 months. As a silver lining, it will sow the seeds for a substantial retracement of inflation,” Schmidt said.