A rough year for U.S. stocks is winding down, but the market’s pain may be far from over, as investors brace for an expected recession in 2023.
"The consensus is pretty clear that there is going to be a recession in 2023," said Chuck Carlson, chief executive officer at Horizon Investment Services. "The issue is how much has the market already discounted a recession, and that’s where it gets a little bit thornier.
Stocks could also see a bigger move than usual next year. The S&P 500 has swung by at least 10% in either direction in the year after a decline of 15% or more, according to Bespoke Investment Group.Investors are also gauging to what degree slowing growth has been factored into corporate earnings. Yet earnings fall by an average annual rate of 24% during recessions, according to Clissold, leaving plenty of downside for profits if a slowdown hits.
While many investors believe rates will peak sometime in the middle of 2023, policymakers earlier this month said the benchmark interest rate will“The market focus is shifting from inflation concerns to growth concerns,” said Mona Mahajan, senior investment strategist at Edward Jones. "If there are any inflationary shocks that are unforeseen, that will derail the narrative.”
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