US stock market 2023: US stock market investors are looking for indicators that may result in a rebound in share prices in 2023. From inflation, Treasury yields, and dollar strength to jobs data and producers’ price index amongst several other data, investors are keeping a close watch on them for any cues that can bring the bullish sentiments back in the markets. On the other hand, many stock market analysts are of the view that the real impact of Fed rate hikes could be seen in the first half of 2023. In an exclusive interview with Financial Express Online, Ashwin Patni, Head Products & Alternatives, Axis AMC talks about the outlook for the US stock market in 2023 and the factors that may lead to a rebound in US equities next year. Excerpts:
What is your outlook for US equities in 2023?
Global equities remain under pressure amidst geopolitical tensions, high inflation, tightening monetary policy, and ultimately earnings risks that look inevitable as the economic cycle slows. Inflationary pressures have exerted a strain on discretionary spending and with central banks remaining focused on combatting inflation, interest rates have been rapidly rising, further weighing on consumer confidence.
Recent events in credit markets have only served to highlight the vulnerability of equity markets to policy action and disappointing data on inflation and growth. Going forward, while material economic challenges remain, inflation may be less entrenched and the economic downturn less severe than many envisage.
We believe the market will be looking for an eventual trough in earnings revisions and a peak in interest rates to signal the start of a new cycle.
Also Read – US stock market defining moment: CPI data release today, Fed rate hike decision tomorrow
What are your views on US corporate earnings next year?
For many of the companies, the current quarter will be even more critical for their 2022 earnings and 2023 outlook. The Festive periods are especially important for consumer-oriented firms. With consumers paying higher prices for essentials such as food and energy, and interest rates still going up, corporate earnings may suffer. Earnings guidance for the reporting companies over the coming quarters have generally come down, but not enough to account for the prospect of a US recession next year. It does seem that market estimates may be optimistic about corporate earnings for next year in particular.
How important are US Fed policies, especially related to interest rates, for investors to keep an eye on?
We all would have heard of the phrase “when US sneezes, the world catches a cold”. FED actions impact the global central banks’ decisions and the same is taken into consideration by RBI monetary policy committee. The Fed is expected to continue to tighten its key policy rate. Indeed, the central bank chair said the inflation rate remains far too high, and the policy stance will need to be at a restrictive level for some time. Even so, it did indicate that the pace of rate hikes will likely be less aggressive going forward.
Also Read: Final week of major economic news in 2022 in global markets
What factors may lead equities to rebound in 2023?
In the new year, we expect inflation to come down and the rate hike pace to slow. This along with stable and lower crude prices, corporate earnings may improve over the year. The market expects the S&P 500, cyclical, and metals to trough next year as confidence in growth increases. Equities may begin to process that growth reacceleration well in advance and rebound in the coming year.
