JPMorgan, Goldman say stocks recovery won’t be easy in 2023

That’s the blunt message from top strategists at Morgan Stanley, Goldman Sachs Group and others, who are warning that stocks face fresh declines in the first half as corporate earnings succumb to weaker economic growth and still sky-high inflation, and central banks remain staunchly hawkish.

The second half will mark a recovery once the Federal Reserve stops hiking rates, they say – but it’s likely to be a muted rebound that will still leave stocks only moderately higher than at the end of 2022.

“The risks that stock markets grappled with this year aren’t over and that makes me nervous about the outlook, particularly in the first half,” Mislav Matejka, global equity strategist at JPMorgan Chase, said in an interview.

The average target of 22 strategists canvassed by Bloomberg has the S&P 500 ending next year at 4,078 points – about 7% higher than current levels. The most optimistic forecast is for a 24% increase, while the bearish view sees it slumping 11%.

In Europe, a similar survey of 14 strategists projected average gains of about 5% for the Stoxx 600.

The cautious central case reflects the mountain of challenges from monetary tightening to the war in Ukraine and Europe’s energy crisis. The first of those has already helped quench a recent stock rally.
Even the better news on inflation has come with a big caveat because it hasn’t swayed central banks from their focus on getting it under control. Hawkish tones from both the Fed and the European Central Bank last week sparked sharp equity declines, and reminded investors that timing the long-awaited policy shift won’t be simple.

If that message wasn’t getting through already, the Bank of Japan hammered it home on Tuesday with a shock tweak to its bond-yield policy.

To be sure, consecutive down years are rare for US stocks, so after this year’s drop, there’s only a low probability they will post annual declines again in 2023. Since 1928, the S&P 500 has only fallen for two straight years on four occasions: The Great Depression, World War II, the 1970s oil crisis and the bursting of the dot-com bubble at the start of this century.