With the start of 2023 showing promise for US-centric portfolios, many investors may be feeling optimistic about the stock market. However, a closer look at the outlooks and forecasts from major banks and analysts reveals a more complex and varied picture, with some cautionary notes and potential challenges on the horizon.
I’ve had a great start to 2023 with my SIPP and ISA stocks. As you will know I have a US-centric portfolio. But, should I be more cautious?
The 2023 outlooks for the stock market vary depending on the source and the region. Some of the major banks and analysts that have published their forecasts are:
- Goldman Sachs: They expect global growth of just 1.8% in 2023, as US resilience contrasts with a European recession and a bumpy reopening in China. They also see high-grade bonds as more attractive than stocks. They provide various outlooks for different regions and asset classes in 2023. For example, they forecast that economic growth will start in 2023 on the weak side across most of Asia-Pacific due to inflation pressures and slowing manufacturing cycle. They also expect US stocks to have zero earnings growth and zero appreciation in 2023.
- J.P. Morgan: They predict that the S&P 500 will fall to around 3,000 in the first half of 2023 as the Fed tightens monetary policy and economic growth slows down. However, they also anticipate a recovery in the second half of 2023, driven by a Fed pivot and lower inflation.
- U.S. News & World Report: They report that only about 27% of investors have an optimistic outlook on the market for 2023, while nearly 48% have a negative outlook. They also cite some of the stock market trends for 2023, such as recession risk, fixed income attractiveness, patient investing and diversification.
- Bankrate: They suggest that while the market as a whole may tumble in 2023, some sectors may be poised to outperform amid a downturn, such as value stocks, energy stocks and consumer staples stocks. They also advise investors to focus on their long-term goals and risk tolerance rather than timing the market.
Tech: One of My Favourites Again
The tech sector is expected to face some challenges and opportunities in 2023, according to various sources. Some of the themes that may influence the sector are:
- Macroeconomic uncertainty: The tech sector may have to deal with softening consumer spending, lower product demand, falling market capitalizations and rising interest rates in 2023. However, it may also benefit from strong corporate earnings, low debt levels and innovation potential.
- Global uncertainties: The tech sector may have to navigate geopolitical tensions, trade disputes, regulatory changes and cybersecurity threats in 2023. However, it may also leverage its global presence, cross-border collaborations and digital transformation capabilities.
- Industry transformation: The tech sector may have to adapt to changing customer needs, competitive pressures and environmental concerns in 2023. However, it may also transform other industries through technology solutions such as cloud computing, artificial intelligence, 5G and biotech.
- I own Microsoft (2x leverage) and Nvidia (2x leverage) as well as Tesla.
As for Morgan Stanley’s outlook for the tech sector in 2023, I could not find any specific forecast from them. However, they do provide some insights on the global macroeconomic outlook for 2023, which may affect the tech sector indirectly. For example:
- They expect global GDP growth to top out at just 2.2% in 2023 as inflation pressures weigh on growth.
- They predict that US GDP growth will slow down to 0.8% in 2023 as consumer spending moderates and business investment contracts.
- They anticipate that China’s GDP growth will rebound to 5.5% in 2023 as policy easing supports domestic demand and exports recover.
Consumer Discretionary: Another Favourite
The consumer discretionary sector is expected to face some headwinds and tailwinds in 2023, according to various sources. Some of the factors that may influence the sector are:
- Macroeconomic concerns: The consumer discretionary sector may suffer from a slowdown in economic growth, a rise in inflation, a decline in consumer confidence and spending, and a cost-of-living crisis in 2023. However, it may also benefit from fiscal stimulus, pent-up demand, vaccine rollouts and reopening trends.
- Stock valuations: The consumer discretionary sector may offer attractive opportunities for investors as many stocks are trading at low valuations relative to their earnings potential and historical averages. However, it may also face valuation pressures as interest rates increase and earnings growth decelerates.
- Industry fundamentals: The consumer discretionary sector may have solid fundamentals as many companies have strong balance sheets, cash flows and competitive advantages. However, it may also face challenges such as supply chain disruptions, labour shortages, margin pressures and changing consumer preferences.
Conclusion
I also own Apple, Amazon, and JP Morgan as well I better mention. The former two on 2x leverage.
As we move further into 2023, investors should consider the range of perspectives and data available when making decisions about their portfolios. While some sectors and industries may face headwinds, there may also be opportunities for those who focus on long-term goals, risk tolerance, and a diversified approach. Whether it’s the tech sector, consumer discretionary, or other areas of the market, a cautious but strategic approach may be the best course for investors in the coming months.
Alpesh Patel OBE
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Sources:
Consumer discretionary sector outlook | Fidelity. https://www.fidelity.com/learning-center/trading-investing/outlook-consumer-discretionary Accessed 23/02/2023.
Outlook for UK Retail & Consumer 2023 | Retail Economics. https://www.retaileconomics.co.uk/retail-insights/thought-leadership-reports/outlook-for-UK-retail-and-consumer-industry-2023 Accessed 23/02/2023.
2023 Consumer Products Industry Outlook | Deloitte US. https://www2.deloitte.com/us/en/pages/consumer-business/articles/consumer-products-industry-outlook.html Accessed 23/02/2023.
Consumer Discretionary Sector Outlook | Fidelity Institutional. https://institutional.fidelity.com/app/item/RD_9883477/consumer-discretionary-sector-outlook.html Accessed 23/02/2023.
2023 Technology Industry Outlook | Deloitte US. https://www2.deloitte.com/us/en/pages/technology-media-and-telecommunications/articles/technology-industry-outlook.html Accessed 23/02/2023.
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Global Macroeconomic Outlook 2023 | Morgan Stanley. https://www.morganstanley.com/ideas/global-macro-economy-outlook-2023 Accessed 23/02/2023.
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Morgan Stanley’s 2023 Outlook. https://us.etrade.com/knowledge/library/perspectives/ms-2023-outlook-totm Accessed 23/02/2023.
Outlooks: Market and Economic Forecasts | Morgan Stanley. https://www.morganstanley.com/Themes/outlooks Accessed 23/02/2023.
Global Investment Strategy Outlook 2023 | Morgan Stanley. https://www.morganstanley.com/ideas/global-investment-strategy-outlook-2023 Accessed 23/02/2023.
Goldman Sachs | 2023 Outlooks. https://www.goldmansachs.com/insights/pages/2023-outlooks/ Accessed 23/02/2023.
2023 Market Outlook | J.P. Morgan Research. https://www.jpmorgan.com/insights/research/market-outlook Accessed 23/02/2023.
