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Stocks outlook for 2023: is turning point ahead?

The stock market sell off is eager for a turn around in 2023. There are many factors which will decide when. Let's take a look.

In the past year, the stock market had a rough time, and investors lost a lot of money. You might find it hard to trade stocks in 2023 due to the Federal Reserve raising interest rates, the war between Russia and Ukraine, fears of a recession, and inflation.

But even in this time of uncertainty, there are things to do. You can have your own bull market in some cases. Stock pickers who are smart and experienced have a chance to beat the struggling market by a large amount.

In 2022, all three of the most important stock market indices had their worst drops since the financial crisis of 2008. The Dow Jones Industrial Average did the best, falling 8.8%, because it had the least exposure to technology companies that did very poorly. The S&P 500 fell by 19.5%, but the tech-heavy Nasdaq composite fell by more than 33%, which was a huge loss.

What to expect from the stock market in a downturn?

One of the most important economic questions for the stock market projection for 2023 is whether or not the United States will have a recession as the Federal Reserve works to lower inflation.

At its meeting in December, the Federal Reserve said that it will raise its funds rate to a range of 5% to 5.25% in 2023. One important thing to think about is the health of the job market. Even though rates have gone up, incomes have gone up, however, they haven’t kept up with the cost of living.

More to read: GBP/USD expects US inflation data above key supports

The Fed is expected to stop raising rates by the end of the first quarter of 2023, and then other major central banks will do the same. The forecast for 2023 is becoming less certain because of what the Fed is doing.

According to some experts at J.P. Morgan, S&P 500 will test the lows of 2022 again in the first half of 2023, as the Fed tightens too much and economic fundamentals get worse. Because of this sell-off, disinflation, rising unemployment, and a worsening business mood, the S&P 500 should reach 4,200 by the end of 2023. This could be a motivation for the Fed’s change in course.

According to analyst firm Morningstar research, the stock market will be rough in the short term, but that things will get better in the long run. That pretty much aligns with what other experts think.

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Last year, Morningstar focused on 15 mega-cap stocks that are too expensive going into 2022 and have raised the average price of all stocks on the market. Two-thirds of these stocks have done much worse than the market as a whole over the past year and got sold off. As we can see, a lot of mega-cap stocks are cheap right now.

In fact, Tesla, Nvidia, Bank of America, and Broadcom were all on Morningstar’s list of overpriced mega-cap stocks at the beginning of the year. Since then, their prices have dropped so much that they are now on their list of undervalued mega-cap stocks. This is raising opportunity questions as to whether it is time to start re-buying or wait a bit longer.

Volatility will be high over the next few months, especially up on days when key economic news come out.

Continued turbulence

In 2022, the stock market was very volatile. Changes of more than 1% during a single day have happened more often than they have since the Great Recession.

Volatility is a number that shows how often and by how much prices change. When price changes are bigger and happen more often, the market becomes more volatile. Due to the possibility of a recession, more interest rate increases, and China’s economic openness, these erratic moves may continue in the coming months.

Also an interesting topic: Gold awaits fresh data to move- where will inflation send it?

But volatility is common, and investors can weather the storm as long as they stay calm and keep their eyes on the prize. In fact, returns often go up after big drops in the market.

Some experts say indices could hit new lows in 2023. Many investors are used to quick stock market recoveries, which have been helped by the Federal Reserve’s support. But as long as the Fed keeps talking hawkish, the market could be in for a time of consolidation.

The good and the bad

Marko Kolanovic, the chief global markets strategist and co-head of global research at J.P. Morgan explained how Fed, and thus the general market and economy could react in 2023.

In 2023, there is both good news and bad news for stock markets and other risky asset classes. On the positive note, central banks are likely to be forced to change their minds and announce rate cuts in 2024. This should cause asset prices and the economy as a whole to keep going up until the end of 2023.

The negative is that this will require the economy to get worse. Unemployment would probably go up, the market would get more volatile, the number of risky assets would go down, and inflation would decrease. Each of these is likely to add to or happen at the same time as a bad risk in the near future.

What are possible scenarios for investors in 2023?

When a bull market starts again, new people take the lead. Until the 2023 stock market forecast is clear, investors who are brave, and quick on their feet can make the most money. With opportunity comes risk and with high risk can come high reward.

David Ryan, who won the US investing championship thrice advised a similar note. Ryan thinks in order for you to cash in on opportunities, you will need to watch the stocks in great detail. Times of copying major indices are over, and portfolios need more active management.

Ryan thinks investors can do better if they focus on areas that are doing well even though the market as a whole is doing poorly.

Tomáš is a financial reporter with US markets as his main field. He actively started in finance only recently, however has been surrounded by many analyst and reporting professiona...

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