A complete overview of the factors that will influence investment in 2023

The year was a turning point for many people. For many investors, it may have been their first profitable year because it was preceded by one of the longest bull markets. Unfortunately, 2023 has yet to bring the coveted light at the end of the tunnel. However, we can look at what is likely to impact the next year from an investment perspective!

Covide madness in China. Central banks with the brakes slammed on. Huge losses in the stock market and much more. These are the factors the market and investors must grapple with to avoid a second straight year in the red.

With a decline of more than 20% in 2022, the MSCI World Index is on track for its worst performance since the 2008 crisis, as a jump in interest rates by the Federal Reserve has more than doubled 10-year Treasury yields - rates that underpin the global cost of capital.

But investors can take solace in the fact that two consecutive years of decline are rare for stock markets - the S&P 500 index has fallen two or more years in a row on only four occasions since 1928. The scary thing, however, is that when they do occur, the declines in the second year tend to be deeper than in the first.

On the other hand, history and this chart also show that if there is a decline of 20% or more in one year, 66% of the time the trend reverses and the following year there is a big rise.

However, these are just numbers. Macroeconomic and fundamental factors will also affect markets - and here are a few.

Central banks

Optimists may point out that the peak of rate hikes may well be on the horizon. Many investors expect the Fed to move into rate-cutting mode by the end of 2023. According to a Bloomberg News survey, 71% of the world's leading investors expect stocks to rise in 2023.

One risk is that inflation remains too high and a rate cut does not happen. Moreover, investors are adamant that a recession is coming. Nevertheless, it seems unlikely that central banks will rush to ease policy in the face of the problems in the economy , a strategy they have repeatedly deployed over the past decade.

"Central banks (at least in the U.S. and Europe) now seem resigned to weaker economic growth in 2023," Christian Nolting, global chief investment officer at Deutsche Bank Private Bank, said in a note to clients. The recession may be brief, but it won't be painless, he warned.

Big Tech

The big unknown is how Big Tech will fare after the 35% plunge in the Nasdaq 100 index in 2022. Companies like Meta Platforms $META+1.5% Tesla $TSLA-3.6% have lost about two-thirds of their value, while losses for Amazon $AMZN-1.2% and Netflix $NFLX-0.4% have approached or exceeded 50%.

Expensively valued technology stocks actually suffer more when interest rates rise. Some tech names will bounce back because they have been great at convincing customers to use them despite economic problems. Their technology is just too important to people. The ones that can't do this will probably suffer a lot.

China

Beijing's decision in early December to lift its tight restrictions on Covid appeared to be a turning point for China's MSCI index , whose 24% decline in 2022 contributed significantly to global stock market losses.

However, the month-long rally in mainland and Hong Kong equities has subsided as a sharp rise in Covid-19 infection threatens the economic recovery. News reports suggest that there are 250 million infections a day in Asia's largest country. And that's enough to send the economy reeling. Overall, this continent is important. Particularly for technology or perhaps Tesla, for whom this could be another problem.

Recession

It is widely expected that previously resilient corporate profits will collapse in 2023 as margin pressure increases and consumer demand weakens (which is kind of CB's goal).

Mike Wilson of Morgan Stanley argues that profits are still too high. He expects average earnings of $180 per share for the S&P, while analysts expect $231. The estimates are too high, according to him and many other bearish analysts.

That's a couple of major factors. However, investors have to reckon that the market and the economy are living oganisms that change within minutes and also react to all sorts of news of various flavors from around the world. Anything can happen! So stay alert and keep an eye on what is happening around you. It can help you make the right decisions in the market.

What factors do you think will have the biggest impact on the markets in 2023?

Disclaimer: This is by no means an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources (YTB, Yahoo, Tradingeconomics). Investing in financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.