Going into 2023, stock market investors in the US will need to fundamentally alter their priorities. Two significant macroeconomic changes are expected in 2023: first, inflation is expected to further slow down after reaching multi-decade highs, and second, the dollar’s competitiveness with other currencies may diminish. Additionally, as interest rates hikes by US Fed take a break and China’s economy fully opens up once Covid-led restrictions are repealed, equities may make a comeback.
“Global stock markets fell by a staggering 18% in 2022 on average. Bond markets – traditionally a safe haven in times of volatility – have declined by 12% on average. The downward moves of financial markets have wiped tens of trillions of dollars in wealth over the last year. This is why investors and savers are more alert than ever to the major themes that will define the year ahead,” adds Nigel Green, CEO and founder, deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organisations.
“There are four over-riding investment themes that investors will be watching and positioning for in 2023 in order to build their wealth,” says Green.
First, inflation is likely to peak in most major economies. Inflation is still a major concern for investors, and it will most likely be a major factor in US stocks in 2023. Rising inflation can make it more difficult for businesses to increase sales and profits, so investors will be watching how inflation affects the US economy closely. “We have seen recently how positively – and how quickly – markets reacted to the better-than-expected U.S. inflation data. Wage inflation remains an issue, but this should ease through the year,” adds Green.
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Second, China’s reopening. “China’s economy – the world’s second-largest – is coming out of hibernation after three years of coronavirus restrictions. This could be the most visible, most anticipated, and most impactful upside boost for global markets we’ve seen in recent times. The rebound is likely to be dramatic,” observes Nigel Green. The US-China trade war has dampened US markets, and China is likely to remain a major factor in the US stock market in 2023.
Third, the weakening of the U.S. dollar. The fundamental reason why a higher dollar bull market has been bad for stocks is that it affects multinational firms’ profitability. A higher dollar lowers the price of imports while raising the cost and reducing the competitiveness of exports on international markets. “We expect the dollar strength to peak in mid-2023. A strong dollar has hit both developed and emerging markets globally, fuelling Inflation and raising the cost of imported goods. It has also added to the need for some central banks around the world to tighten their own financial conditions. This will all ease when the dollar’s supremacy weakens.”
Fourth, could be the rotation of funds into tech stocks yet again. Tech stocks are anticipated to continue to play a significant role in the US stock market in 2023 due to the continuous emergence of new technologies and digitalization. In 2023, the rise of automation and digitalization is probably going to have a significant impact on US stocks.
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Businesses will increasingly rely on automation and digital solutions as technology develop to streamline processes, boost productivity, and cut costs. “As cost-of-living eases and global growth picks up the pace throughout 2023, investors will be seeking to increase their exposure to growth stocks. These are stocks that grow at a rate higher than the market average, typically such as tech stocks.
“Inflation peaking, China’s reopening, the dollar’s weakening, and the rotation toward growth stocks will dominate the global investor mindset in 2023 as they seek to create and build wealth after a challenging 2022,” concludes the deVere CEO.