Here’s What Experts Predict for the Stock Market in 2023

Updated: January 18, 2023
by Jack Stan

When it comes to the stock market, many experts can agree that 2022 was a very bad year. Whether you had a retirement account or company stock investments, there is a great chance that you experienced losses. With inflation and various worldwide events, inflation took a toll, causing the S&P to drop by 21%. This was the worst point since 1970.

But what does this mean for 2023? Will the stocks keep going down, or is there still hope for our investments? Opinions vary, but if you were planning to sell your stocks, you may want to hold back on that thought. 

Here's What Experts Predict for the Stock Market in 2023

Fixed Income Return

2023 might not be the best time for stocks. In fact, they may struggle a bit. But while this is the case for stocks, bonds beg to differ. They will return gloriously. 

This seems to happen because prices fell together for both bonds and stocks in 2022. It’s a rare occurrence. So, while stocks have to suffer, bond investors are going to have the best time ever because decreasing bond prices mean that yields are going to be bigger, which in the end brings more income. 

Higher Recession Risk

Economy will go through a rough time in 2023. Inflation seems to decrease, which is something everyone was hoping for. At the same time, economists and analysts believe that inflation will actually stay around for longer and lead to disaster. 

So far, the Fed was able to avoid recession while increasing rates. But according to some recent economic data, it is very likely to go into a recession in the first half of 2023. 

Home Sales

In November, the rate of home sales in the United States went down by 7.7%. Compared to one year ago, they are down by 35.4%. In December, the consumer sentiment in the U.S. increased by 5% in December on a monthly calculus. However, it stays down by 15% year-over-year. 

The Fed has also reduced its expectations for economic growth for 2023. In December, the FOMC made updates to its economic projections in the long-term. Its 2023 U.S. GDP growth forecast was reduced to only 0.5%. Simultaneously, the U.S. unemployment rate was raised by the FOMC to 4.6%. 

According to Aditya Bhave, an economist for the Bank of America, investors should expect the first half of 2023 to bring a recession in the U.S. The first market to suffer will be the labor market. Bhave also says that the manufacturing field is already struggling, with the housing market of the U.S. dealing with recession already. 

Stock Performance after a Down Year

Even if 2022 was a bad year for stocks, experts say that things will change in 2023. The downturn of 2022 sets the stage for long-term investments, as prices will only steadily begin to increase. After the downturn of 1970, prices went up, going as high as 12% over the following 12 months. This happened several times throughout the last century. 

This is not a very good time for stockholders that already made their trades and investments. Still, it is a great opportunity for those planning to make a purchase. Stock prices are at their lowest, and once the economy settles, they will rise. This makes them a good opportunity for long-term investments.

Rising Interest Rates

Rising Interest Rates

During the first quarter of 2023, there will still be issues caused by inflation and interest rates because they’re still going to increase. 

In November 2022, the consumer price index got 7.1% year-over-year - this is less than the October one, which was 7.7%. Meanwhile, the personal consumption expenditures price index saw a 5.5% year-over-year rate in November, which was lower than October when it was 6.1%. 

In the meantime, Core PCE increased to 4.7% in November of last year. This is more than the long-term target of the Fed, respectively 2%. 

The Federal Open Market Committee decided to reduce the interest rate hike pace in order to increase the fed funds target rate by as much as 50 basis points. Their goal would be to bring it somewhere between 4.25% and 4.5%. The recent rise in rate that happened in December comes after 4 consecutive 75 bps FOMC hikes. 

Meanwhile, there are high chances that by March 2023, the Fed will increase the traits once again by 50 bps. 

More Opportunities for Tech Stocks Investors

Many tech giants went down in 2022. For instance, Nasdaq went down by over 30%, whereas Amazon went down by more than 50% from the highest they’ve ever been. Meanwhile, stocks like Microsoft and Apple already went below their high annual watermarks. 

However, this brings new hope for the future for those who want to invest in these stocks. Many people believe that once the “recession” occurs (or not) and once the rate increases have died down, software will definitely fare well. Investors are likely to see technology as a wonderful opportunity in the long term if things start improving during the first half of 2023. 

Potential Short-Term Losses

While stocks are expected to improve by the end of 2023, this does not mean that the entire year will be good. In the first part of the year, stocks will remain at low points, causing potential losses. This can be significantly inconvenient for day traders, who mainly specialize in long-term investments. 

Experts recommend that you go for reliable brokers during this season, as they know precisely how to match these trades. You can check this list if you are from USA and find someone that suits your preferences. The earnings will not be major, especially during the first part of 2023, but it will be enough for you to reduce even more losses.

Small-Cap Stock with Opportunities

Small-Cap Stocks

In times of recession, small-cap stocks are among the very first ones that are affected. Compared to large-caps, small-cap stocks are a bit riskier due to their smaller size, but also their decreased wherewithal. 

At the same time, when it comes to smaller stocks, they may surprisingly grow at much higher rates. As a result, investors may get better returns. So, more investors are likely to choose several good small-caps. 

Volatility Continues

The year 2022 was characterized by extremely volatile price swings, going much higher than 1% (which is the accepted average). This is the highest volatility that we experienced since the times of the Great Recession.

This volatility is expected to continue throughout 2023 as well, but experts say that this is normal. Patience is advised, especially for long-term investments. Considering that returns tend to improve after a downtrend, holding onto your stocks may bring even bigger earnings. Bonds are also expected to improve by the end of 2023, which is why an investment may prove to be beneficial.

The Worst 2022 Performers Will Shine in 2023

Some stocks had a terrible time in 2022, and while you might expect them to keep underperforming, things actually look good for a few stocks. It seems that some of the most terrible performers of 2022 will be in the spotlight in 2023 with a great performance. 

One example is homebuilders stocks. The SPDR S&P Homebuilders ETF went down by almost 30% last year. The cancellation rates were higher while the demand was lower, and this led to increased house prices and higher mortgage rates. 

But in 2023, mortgage rates may go down, which would be a good thing for homebuilders. 

E-commerce stocks like Amazon also had a bad time in 2022. Amazon in particular went down by almost 50% last year. It gave back all of the gains it made during the coronavirus pandemic. 

The Bottom Line

A good part of 2023 will still be rather questionable in terms of investments. That being said, by the end of the year, things will look much better. History tells us that after a downtrend, an uptrend will always follow. This is the time to be patient and allow your stocks to mature.

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About the author 

Jack Stan

Online Marketing Career Consultant. Network marketing and web developing since 2009, helping people quit daytime job and earn enough money and freedom. Keen swimmer, horse-rider, cake-baker, a little bit of OCD.

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