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According to a well-known company, stocks will experience hell this year. But a different kind of asset is said to…

Jamie Cameron
24. 1. 2023
4 min read

Everyone is worried about 2023. On the other hand, its beginning did not bring such major problems. But according to a well-known company, this is a false signal that we must not be fooled by. The stock is going to hell!

Stocks are not going to have the best year this year

The Dow Jones industrial index ended the week down 2.7%, while the S&P 500 index fell 0.7%. However, the index is still up 3.5% this year and the Nasdaq Composite, which rose 0.55% last week, gained an even more impressive 6.4% in January.

Even on Friday, the indices were flying like crazy

But here's the weird thing... The communications services and consumer staples sectors of the S&P 500 are crushing the market, each up at least 5% since the beginning of the year.

In contrast, defensive consumer staples, utilities and health care stocks have fallen more than 2%. If investors are worried about a recession, it should be just the opposite.

It is too early to make such bets. Federal Reserve policy is notorious for operating with a long and variable lag: We must raise interest rates above 5% immediately or disaster will strike, says a senior economist

But Morgan Stanley has a different view. They do not expect much from equities in their outlook for 2023. The advice and opinion of the giant company is as follows:

The multiple rises in U.S. equities in a bear market through 2022 suggest that many equity investors have not accepted the likelihood of higher and longer-term interest rates and a material slowdown in the economy, even as economic data and Treasury yields continue to sound the alarm.

We believe US equity investors may be overly optimistic, and see two main reasons for concern heading into 2023:

  • Not very attractive valuations: risk premiums for equities - the potential excess returns that can be expected when investing in equities versus risk-free bonds - are still relatively low. This tells us that investors are not adequately compensated for taking equity risk.
  • Exaggerated earnings expectations: Consensus earnings forecasts for 2023 for the S&P 500 index are around $230, a number that assumes earnings growth of approximately 5%. In our view, this estimate does not take into account the challenges that companies are likely to face, particularly as they begin to feel the impact of tighter monetary conditions in earnest. These include lower sales volumes and loss of pricing power, potentially at the same time. We believe a more realistic forecast is $195, based on our expectation that the index will retreat another 15% to 20% before recovering to a level roughly equal to today's by the end of 2023.

On the other hand, he believes strongly in bonds and also in one other area... albeit, again, equities.

US equities have long dominated investors' allocations, but perhaps it's time to consider selective investment in emerging market equities, they say.

  • Emerging market equities are trading cheaply relative to their own history and to developed market equities, and have a lower cyclically adjusted price-to-earnings ratio.
    Key headwinds for emerging regions are likely to ease. For example, the US dollar has come off recent highs and could weaken by 2023, allowing these economies to benefit.
  • In China, which accounts for nearly a third of the MSCI Emerging Markets Index and plays a significant role in determining EM investor inflows overall, economic prospects could improve by spring 2023 as the country begins to relax its zero controls. Moreover, given that China is not struggling with high inflation or rising interest rates, it has significant room for stimulus - a policy lever it will likely pull in 2023 to boost the residential housing market. Finally, China's growth prospects could have positive spillover effects on other economies in Asia and Latin America in 2023 in areas such as exports and tourism.
  • Overall, we advise investors to be patient. Uncertainty around the economy and markets remains high and investors should demand a premium for taking the risk. Be open to rebalancing portfolios as inflation and interest rates normalise.

This is the view of MS, do you share it?

https://www.youtube.com/watch?v=QXEw8B275ys

Disclaimer: This is in no way an investment recommendation. It is purely my summary and analysis based on data from the internet and other sources. Investing in financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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