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2023 Market Predictions

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By Michael O’Connor, theislandinvestor.com

For me, investing is just a potent mix of optimism and paranoia - being optimistic about what the future holds but constantly paranoid about the landmines that you will undoubtedly trigger along the way.

Finding a balance between the two is key, but I have to admit, going into 2023, paranoia appears to have the upper hand.

Expectation vs Reality

Whether you are waiting on test results, or tentatively hovering over the phone for that all important call back from your potential new employer, it's the difference between expectation and reality that dictates the severity of your reaction.

Regardless of how bad the reality turns out to be, if your initial expectations were set apocalyptically low, your reaction will probably be positive and vice versa.

Financial markets work the same way. As I have said before, investing is never about things being objectively good or bad. The narrative is always based around better or worse. If the outlook for markets is exceptionally high and the performance falls even slightly below these expectations, prices will fall as a result. The fact that performance and growth is still strong in absolute terms is irrelevant if expectation were not met. With this in mind, in order to understand how markets will react in 2023, we must first analyse the market's expectations.

The Year Ahead

On the equity side, 12-month forward earnings projections for the S&P 500 are set at 5%. In other words, analysts predict American companies will grow their profits by 5% next year.

While this represents a significant slowdown in growth relative to what we have experienced since the pandemic pullback in early 2020, I view this as optimistic, given the considerable change in monetary and fiscal policy in 2022.

Q3 2022 earnings season looks likely to finish at 2% year-over-year growth, the weakest since the height of the pandemic. Ex-energy, performance becomes weaker still.

Looking ahead to Q4 2022, analysts are now predicting the first negative quarter since 2020, with profit growth falling to -2%. These Q4 earnings predications from the same analysts were as high as +9% as recently as June.

While expectations for ‘23 are still at plus 5% earnings growth, I wouldn’t be surprised to see 2023 earnings forecasts suffer the same faith as the Q4 2022 forecast.

In short, markets are a bit like the Irish weather, never believe the forecast.

As leading indicators continue to point towards a slowdown in economic activity, a base case of positive 2023 earnings growth becomes difficult to justify. In my view, this will result in some negative earnings surprises in the second half of 2023.

In Fixed Income markets, the Fed has reiterated its plan to hold rates higher for longer, and this expectation is reflected in markets. According to the market-implied Fed Funds Rate, investors are now expecting US short term interest rates to peak at 4.9% in six months and remain well above 4% into 2024.

In my view, the probability of the Fed maintaining a long pause as we enter more economically uncertain times is not as high as the market is predicting. I believe a pivot is likely before 2024 as earnings and labour markets weaken.

Summary

While the lows for multiples may already be in, a mild earnings recession in the second half of 2023 may result in a slow grind lower for the stock market.

This pullback in earnings and labour will prompt a pivot from the Fed, forcing them to cut rates in an attempt to avoid the re-emergence of the disinflationary forces that provoked a decade of QE through the 2010s.

While it is impossible to know the exogenous shocks that lie ahead, buying up short-term Treasuries and maintaining a tilt toward value-based equity will protect if the current economic slowdown persists.

For more tips on how to beat the market in 2023, simply go to www.theislandinvestor.com.

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Rebel lights delight for Killarney star

By Con Dennehy The continued growth, development and participation of women’s handball in East Kerry was rewarded at the weekend when Cork hosted ‘She’s Ace’, the prestigious All Ladies Handball […]

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By Con Dennehy

The continued growth, development and participation of women’s handball in East Kerry was rewarded at the weekend when Cork hosted ‘She’s Ace’, the prestigious All Ladies Handball championships.

Attracting all the leading players in Ireland, it was Sarah Dineen, the Spa/Killarney player who shot out the Rebel lights in Conna with a phenomenal display of handball.

Competing in the highly competitive Ladies Challenger championship, the Killarney player, who took up the sport just 18 months ago, had the perfect start in the competition defeating the home town favourite Agnes Hurley from Conna on a 21-20 scoreline following an energy sapping and close encounter that hung in the balance to the final ace.

In her second game she took on the challenge of Nolwenn Even from St Brigids where her skill, superior fitness and movement on the court resulted in the 21-12 victory and a place in the prestigious final.

“The final was always going to be a difficult game not least playing local girl Kate O’Riordan from Conna. I concentrated on my serve and kill shots which ensured we shared the aces early in the game. It was a difficult game with the home supporters out in force to cheer on their local hero. However, I played well and secured a 21-11 victory. This was the second time this title came to Spa Killarney following the 2022 win by Aoife Walsh in Northern Ireland,” said Sarah, who is currently chairperson of the Killarney Camogie Club.

A native of Westmeath, Sarah (46) runs a jewellery business in Killarney and lives in Rathmore. No stranger to competitive sport she played camogie for Westmeath and Leinster and also won an Intermediate championship Gaelic football medal in Westmeath.

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STEM Scholarship for outstanding female student

By Michelle Crean A Killarney student attending University College Cork has received a STEM scholarship. Annie O’Donoghue (22) who is in her final year of a Bachelor of Science Degree in Data Science […]

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By Michelle Crean

A Killarney student attending University College Cork has received a STEM scholarship.

Annie O’Donoghue (22) who is in her final year of a Bachelor of Science Degree in Data Science and Analytics in University College Cork, was recognised as an outstanding female student in STEM2D disciplines: Science, Technology, Engineering, Math, Manufacturing and Design at a ceremony held at Janssen Sciences site in Ringaskiddy.

Annie, from Muckross, will receive a student award, a bursary of €1,500, industry mentoring and leadership training, along with the opportunity to attend career workshops, visit Johnson & Johnson sites and participate in WiSTEM2D events designed to support students with pursuing future STEM careers.

The Johnson & Johnson WiSTEM2D programme fuels the development of the female STEM2D talent pipeline by awarding and sponsoring girls and women at critical points in their educational experience and their careers, in STEM disciplines. The Undergraduate programme was first introduced at University of Limerick in 2016. Since then, it has expanded to include University College Cork in 2018, University of Galway in 2021, and Munster Technological University in 2022, supporting more than 400 female students over the last six years.

“It’s an honour to be a recipient of this award,” Annie, who is a former St Brigid’s Presentation Secondary School student, told the Killarney Advertiser.

“It’s great to see the number of women in Science, Technology, Engineering, Mathematics, Manufacturing and Design, increase over the years.”

She added that the goal of the award is “to inspire women to pursue their career path in their respective STEM2D field of work”.  
 

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