8 Market and Economic Predictions for 2023

2. UBS: Inflection Points Coming

“Investors with the discipline and patience to stay invested in line with longer-term goals should be rewarded,” said Mark Haefele, chief investment officer, UBS Global Wealth. “And those currently sheltering from volatility will need to plan when, and how, to head back into riskier assets.”

The firm favors defensive and value stocks, income opportunities, safe-haven currencies and diversification with alternatives.

"Hopes for receding inflation and fears about slowing earnings mean the near-term outlook is uncertain," UBS said, although the firm expects a more constructive investing backdrop to evolve in 2023.

UBS predicts inflationary pressures will recede, central banks will begin to shift to a looser policy and economies will find a trough as the year evolves.

3. Goldman Sachs: Soft Landing, Persistent Bear Market

Goldman Sachs suggests high inflation can be reversed without a recession.

"An extended period of below-potential growth can gradually reverse labor market overheating and bring down wage growth and ultimately inflation, providing a feasible if challenging path to a soft landing," says a recent report from Goldman economists.

While the firm expects the U.S. economy to narrowly avoid recession in 2023, Goldman expects it will take another year of below-potential growth and labor market rebalancing to tame inflation.

In a separate note, Goldman Sachs strategists suggest the bear market will continue into 2023, predicting the S&P 500 will end 2023 at 4,000, only slightly higher than recent levels. They suggest investors focus on high-quality companies, those with deep value, and energy and resources stocks, Bloomberg reported.

4. Morgan Stanley: Bear Market Not Over

Morgan Stanley also expects the S&P 500 to end 2023 at roughly the same place as in late 2022 — 3,900 — with significant volatility in the meantime. The firm's chief investment officer, Michael Wilson, recently predicted a new market low in the first quarter of 2023 and described the bear market as being in the final stages.

The Morgan Stanley strategist, in a recent note and comments on CNBC, considers 2023 corporate earnings estimates too high, according to reports.

Wilson predicted the S&P 500 could slide to somewhere from 3,000 to 3,300 in the first quarter before climbing again, potentially making for a "terrific buying opportunity," MarketWatch noted.

5. TD Securities: Soft Landing Unlikely

TD Securities disagrees with earnings consensus estimates that imply a soft landing for the economy.

"In our base-case scenario of a recession, equity valuations and corporate earnings should adjust downward in 2023," firm strategists recently forecast in their global strategy outlook.

TD Securities expects inflation across most Group of 10 nations to hold above target through 2023, with the Federal Reserve the first G10 central bank to ease policy in Q4 2023, followed by others in 2024.

6. Janus Henderson: Focus on Quality

As inflation remains elevated, the U.S. economy will likely face a midcycle adjustment rather than a recession in 2023, according to Matt Peron, research director at Janus Henderson Investors.

Investors should expect additional rate increases as the global economy slows next year, Peron predicts. He suggests they prioritize companies that exhibit quality, as the higher cost of capital will weigh on corporate prospects.

Optimism is warranted and opportunity can be found, but investors need to come to grips with the fact that the era of ultra-low rates providing a tailwind for equities is coming to an end, according to Peron.

7. DeVere Group: A More Positive Year

Nigel Green, chief executive of financial advisory and asset management firm deVere Group, forecasts a more positive year for markets in 2023 after this year's turbulence.

“The landscape is already looking brighter for the year ahead," he said. "We expect some key market, macro and policy shifts that will provide a significantly more positive outlook for investors in 2023.”

Inflation is likely to peak in most major economies, and low valuations for some high-quality stocks present appealing investment opportunities, he said. Also, dollar strength, which has hampered markets and raised import prices, should peak midyear, according to Green.

“Inflation will still be an issue for a while to come," he said, suggesting investors look into recession-resistant stocks in sectors such as food, energy and financial services. “But it is likely that investors will be seeking to increase exposure to growth stocks towards the end of 2023 as cost of living eases and global growth picks up pace."

8. Crossmark Global Investments: High Hurdle for Rate Cuts

Chief Investment Officer Bob Doll hasn’t issued official 2023 predictions yet but hints at them in a recent note, saying “the Fed has already tightened monetary conditions to a level that will likely lead to recession in 2023.”

U.S. inflation is likely to keep moving lower based on weakening demand and easing supply constraints, but likely won’t return to the Fed’s 2% target, he says, predicting a longer-term shift in inflation from recent decades. S&P 500 earnings estimates for 2023 stand at $230, down from a $252 peak in the summer, and could slide to $200 in a recession, according to Doll.

“Stocks and bonds are no longer expensive but aren’t cheap either,” he says, predicting that in the short term, “the volatile sidewise trading range” that predominated midyear will continue.

Longer term, Crossmark expects 4% to 5% real returns on global equities in the next decade, well below norms since the early 1980s, with the U.S. poised to underperform. The recent surge in G7 government bond yields improves the bond outlook, with real returns nonetheless likely to be low compared with recent decades, Crossmark predicts.