Next year’s outlook for the U.S. economy and stocks looks grim
Author of the article:
Bloomberg News
Isabelle Lee and Norah Mulinda
Publishing date:
Dec 07, 2022 • 19 hours ago • 3 minute read
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Traders work on the floor of the New York Stock Exchange on Dec. 6. Photo by Michael M. Santiago/Getty Images In the United States Federal Reserve’s quiet period before its officials meet to decide their final actions this year, Wall Street watchers are filling the void, loudly warning that next year’s outlook for the U.S. economy and stocks is grim.
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From Goldman Sachs Group Inc. chief executive David Solomon’s caution that the economy faces “bumpy times ahead,” to JPMorgan Chase & Co. Jamie Dimon’s grimmer view that this would be a “mild to hard recession,” to Morgan Stanley Wealth Management’s Lisa Shalett, who told Bloomberg Television that corporations are facing a “rude awakening” on earnings, the messages have become increasingly dire.
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“We do not think the economic conditions for a sustained upturn are yet in place,” Mark Haefele, chief investment officer at UBS Global Wealth Management, said in a note. “Growth is slowing and central banks are still raising rates.”
Investors appear to be heeding the warnings. Following a two-month rally, the S&P 500 Index has fallen in all but one of the last eight sessions and dropped 1.4 per cent on Tuesday. Equity strategists, historically the market’s biggest cheerleaders, are now predicting a down year in 2023. And the red flags are being waved in the wake of wage and services data that suggested inflationary forces still grip the economy.
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The charts aren’t helping, either. Whenever the benchmark S&P 500 is lower by 15 per cent or worse in a year through November, December is usually much weaker, according to BTIG LLC’s chief market technician Jonathan Krinsky. From January to November, the benchmark index had had a 19 per cent drawdown, with the gauge giving up its ground to close back below its 200-day moving average Monday.
One of Wall Street’s biggest bears, Morgan Stanley strategist Michael Wilson, backed away from a recent call that the market’s recovery could last into December to say that “we are now sellers again” as he and his colleagues expect the S&P 500 to resume declines.
Layoffs are also adding to the gloom. On Tuesday, Morgan Stanley announced it will reduce its global workforce by about 2,000 ahead of a potential U.S. recession, while Bank of America Corp. said it was slowing hiring.
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Recommended from Editorial Three self-appraisal mantras to help investors get ready for 2023 David Rosenberg: Five reasons to buy energy stocks even when oil is going down A year of pain: investors struggle in a new era of higher rates Goldman strategists say stocks are in for a wild ride as they don’t reflect recession risk Tech companies have already been slashing their workforces by the thousands. From Twitter Inc. to Meta Platforms Inc. to Amazon.com Inc., corporations are trimming staff and slowing hiring as they grapple with higher interest rates and a pullback in consumer spending.
Yet there are those, including Charles Schwab & Co.’s chief investment strategist Liz Ann Sonders, who think the economy will improve in the latter half of next year. After all, there has been growing evidence that inflation is easing and the labour market is cooling, fuelling market optimism.
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Article content “We have to take our medicine still, meaning a weaker economy and a weaker labour market. The question is, is it better to take our medicine sooner or later? And I think sooner,” Sonders said. “The outlook is better for the latter part of 2023. The risk to that view would be if for whatever reason the economy continues to run really hot and the Fed has to really slam on the brakes.”
— With assistance from Vildana Hajric.
Bloomberg.com
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