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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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Killarney for Palestine film screening

Killarney for Palestine recently held a sold-out screening of the Oscar-winning documentary ‘No Other Land’ at the West End School of Arts, raising €2,100 for Camp Breakerz. The event, which […]

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Killarney for Palestine recently held a sold-out screening of the Oscar-winning documentary ‘No Other Land’ at the West End School of Arts, raising €2,100 for Camp Breakerz.

The event, which took place on July 3, included two screenings, both of which were fully booked. Guests enjoyed cheese and wine before the shows.
‘No Other Land’ depicts the ongoing destruction in Masafer Yatta, a cluster of villages in the Southern West Bank, and shows the experiences of Palestinians under Israeli occupation. The film won in the Best Documentary category at this year’s Academy Awards.
The screenings were organised in association with the West End School of Arts.
All proceeds from the €25 tickets benefited Camp Breakerz Crew, a children’s charity based in Gaza that provides creative outlets through dance and is involved in food distribution programs in Nuseirat Camp and Deir-Al-Balah due to food shortages.
Sally MacMonagle, who recently spent time in Aida Refugee Camp in Bethlehem, also spoke at one of the screenings.

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Bid to host European Presidency summit meetings gathers pace

Fianna Fáil Spokesperson on Tourism, Michael Cahill TD, has highlighted Killarney’s suitability to host summit meetings of international Government Ministers during Ireland’s six-month European Presidency tenure in 2026. Deputy Cahill […]

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Fianna Fáil Spokesperson on Tourism, Michael Cahill TD, has highlighted Killarney’s suitability to host summit meetings of international Government Ministers during Ireland’s six-month European Presidency tenure in 2026.

Deputy Cahill believes Kerry’s available accommodation, food, and conference facilities are “second to none,” with Killarney as the central location.
“Visitors from every corner of the earth have been coming to Kerry for centuries now, to experience its beauty and serenity and have returned on many occasions because of the fabulous time they have enjoyed during their stay here,” said Deputy Cahill. “Where else would you want to bring the senior Government Ministers of all of our EU counterpart states, to experience Ireland, its customs and heritage?”
The Rossbeigh TD outlined various attractions available for visitors during downtime: “During their downtime, they can visit the Blaskets and Slea Head, Sceilg Mhichíl and the Ring of Kerry, Killarney’s Lakes, Gap of Dunloe, National Park and Sliabh Luachra, all of our glorious beaches from Ballybunion to Rossbeigh, Kells to Ventry, Whitestrand to Inch, Ballinskelligs to Cromane, Waterville to Derrynane.” He also cited Kerry’s golf courses, Listowel Writers Week, the Rose of Tralee, and Puck Fair as potential experiences.
Deputy Cahill confirmed he has raised this matter with An Taoiseach, Micheál Martin; An Tánaiste and Minister for Foreign Affairs, Simon Harris; and Minister of State for European Affairs, Thomas Byrne.
“If Killarney’s bid is successful in bringing the Heads of State to our county for meetings, conferences and functions, it will be a massive boost to the local economy in Killarney and also throughout the county,” added Cahill.”Iwill continue to push in the coming months for Killarney and Kerry to be included as bases for the rounds of meetings that are to take place from July 1 to December 312026.”

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