London, 25/01/2023 – Could there be an earnings recession? Will we see a true Fed pivot? What are the chances for inflation coming down? We address these and many other questions related to investing in 2023 in the latest report developed by XTB analysts.
The past few years on the markets were anything but boring. After the COVID crash of 2020 and the euphoric “everything-rally” of 2021, we had a fairly turbulent 2022 where inflation fears pushed stock prices down and the war in Ukraine sparked volatility on energy markets. Looking at 2023 investors have a mixture of Fed-pivot hopes and recession related fears. In XTB’s latest report, you can find out which 6 stories will be crucial for the markets.
Will there be an earnings recession?
Each of the past 10 US economic recessions was accompanied by an earnings recession, however, not every earnings recession was accompanied with an economic recession. Moreover, S&P 500 earnings growth tends to turn negative in the midst of a bear market.
Does this point towards an earnings recession on Wall Street? Earnings growth in the United States has already begun to slow, but has not yet fallen into a negative territory. As inflation in the United States continued to accelerate above the Fed’s target, the US central bank undertook an aggressive tightening in an attempt to rein in price growth. Leading indicators that proved reliable, like for example ISM manufacturing, suggest that softness in earnings may continue in 2023 as well.
Will the Fed Pivot?
Despite a rocky 2022, the last 14 years on equity markets were amazing for investors, especially on the US markets. This was partly due to the long expansion cycle between 2009 and 2020 but was also greatly helped by a dovish shift in the central banks policies. Never in history have interest rates been that low, effectively at 0% in the US and even negative in Europe and Japan. As a result, equity indices gained more than suggested just by the changes in earnings or the GDP, resulting in elevated valuation metrics like price to earnings or price to sales. These investors hope that a more benign inflation outlook may convince central banks to rethink their recent decisions and reverse the course of the monetary policy in 2023.
However, so far central banks representatives signalled that they may prefer maintaining tight policy for longer to ensure that inflation is eradicated.
Further insights into investing in 2023, including the war in Ukraine, inflation, OIL and NATGAS prices, and China’s real estate bubble, can be found in the complete report. Open a demo account with XTB by clicking below, and receive the free ebook to your email.
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