Dear Investors,
Introduction (Equity Markets)
We’re going to the end of the year and each of us is starting to ask what happen in 2023.
The GDP forecasts is not encouraging, and we see as 2023F for advanced economies such as US, Eurozone and UK with minus signals for the entire year.
-0.1 from 1.8 for the US / -0.8 from 3.2 for the Eurozone and -1.0 from 4.2 for the UK.
What does this mean for the businesses and for the economies?
Easy, decline in profits. For this reason, in this research let’s see how profits could slow over the year and which impact could we expect on the stock market with historical data.
A 21% decline in profits would cause 2023 earnings to miss consensus expectations by 32%.
A soft landing would see profits fall 8% by the end of 2023, a miss of 20% vs consensus.
But again, depending on how slowly these misses are realized, the actual drop in forward earnings may only
Let’s see even thanks to Morgan Stanley paper how stage 1 and stage 2 of bear market could try to help us correctly analyze the market’s status now.
For concluding I’d say that the 2023 is not figuring at the best scenario ever, but as we know with the past the markets is always unpredictable and I’m sure they continue to be, so keep high your attention on it.
Recession risk climbs
The risk of a recession has inevitably increased as we turn to prospects for 2023. There are a range of factors that could cause output to shrink over the coming quarters.
One of the primary risks to growth is a further de-anchoring of inflation expectations, which would force policymakers into hiking rates further into restrictive territory.
Conversely, the potential for policy mistakes from overly vigorous central bankers could also hit growth prospects.
Further downside risks could emanate from an intensification of the war in Ukraine, an escalation of energy crises, and a harsher than-expected slowdown in China.
Meanwhile, higher rates and the stronger US dollar have started to create headwinds for emerging market finances.
Macro insight (equity markets)
In the past three months, as inflation has reached 40-year highs, another worry has begun to seriously buffet financial markets: the increasing probability of a U.S. recession.
The Global Multi-Asset (GMA) of Morgan Stanley team recently increased its estimated probability of a recession to 55%.
Negative real rates for nearly fifteen years – likely positive by 2023
Historically, the U.S. economy has never been able to avoid a recession when faced with an oil shock, a monetary tightening cycle and fiscal contraction.
All soft landings occurred with only one or two of these three drags but never all three. And there will be no cushion coming from global demand given China’s weakness and Europe’s likely recession.