Should we really listen to 'the experts' or stick with tried and tested methodologies that work?

Below is an article that we wrote at the very start of 2023, and with the benefit of hindsight, it makes for great reading again.

It is very easy to forget everything that forecasters say at the beginning of the year; this is something they rely on, especially when they are so incredibly wrong. Forecasting the markets is an impossible task, so we should cut them some slack, but this was spectacularly wrong.

How many of you heard very different rumblings from these major players towards the end of the year as though they always knew how it was going to play out? Of course equities did well, of course China had a property crash and a credit crunch...

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For a bit of fun, we thought it would be good to remind you all what most of the major investment banks were thinking this time last year. A couple did ok, but most got everything upside down.

Read the article with this information in mind (hindsight is a wonderful thing)

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1.????The S&P 500 ended the year at 4,769

2.????Big tech drove the rise in equities.

3.????Bonds were on course to complete their 3rd successive year of losses before rallying in November and December.

4.????The Chinese Shanghai Stock Exchange Composite Index closed 2023 down -4.54%.

5.????Hong Kong’s Hang Seng ended the year down -15.38%.

6.????The Nikkei in Japan rallied 28%.

7.????There were no recessions in the US or Europe.

With all that in mind... here is what they said last year

Here is what the professionals are expecting for the year ahead

5th January 2023

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Bank of America

With inflation, the dollar and Fed hawkishness peaking in the first half of 2023, markets are expected to tolerate more risk later in the year. The S&P 500 typically reaches its bottom six months ahead of the end of a recession, and as a result, bonds appear more attractive in the first half of 2023.

We expect the S&P to end the year at 4,000 and S&P earnings per share to total $200 for the year.

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Barclays

This year’s aggressive rate hikes should hit the world economy mainly in 2023. We expect advanced economies to slip into recession, and we forecast global growth at just 1.7%, one of the weakest years for the world economy in 40 years.

We recommend bonds over stocks, as well as a healthy allocation to cash.

BlackRock Investment Institute

In equities, we look to lean into sectoral opportunities from structural transitions – such as healthcare amid ageing populations – as a way to add granularity even as we stay overall underweight. Among cyclicals, we prefer energy and financials.

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BNP Paribas

We expect new lows for equities in 2023. The 2022 correction has been mostly valuation-driven, and we expect 2023 to be all about earnings, supporting higher realized volatility.

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Citi

In equities, we take off the European underweight and shift it to the US. We go long China and stay underweight in Asia excluding China. We reduce the UK equity long to keep the overall level of equity risk unchanged. For US sectors we remain defensive: long healthcare and utilities against industrials and financials.

In the recovery period, we will also seek a re-entry opportunity in cyclical growth industries, as value equities may prosper when supply pipelines are unable to meet revived demand.

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Deutsche Bank

Equity markets are projected to move higher in the near term, plunge as the US recession hits and then recover fairly quickly.

We see the S&P 500 at 4,500 in the first half, down more than 25% in the third quarter, and back to 4,500 by year end 2023.

Goldman Sachs

Markets are now pricing in a more dovish Federal Reserve, signalling an expectation that the US central bank will begin lowering its funds rate by the end of next year. Our economists, by contrast, don’t expect any rate cuts in 2023.

If the US economy turns out to be more resilient than anticipated and inflation stickier in 2023, stock markets and Treasuries could fall in price.

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HSBC Asset Management

For equities, we think price-to-earnings ratios in developed markets have scope to fall given where bond yields are. But the big risk remains corporate earnings downgrades, which will probably be a driver of weak equity market performance.

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JPMorgan

The convergence between the US and international markets should continue next year, both on a dollar and local currency basis.The S&P 500 risk-reward relative to other regions remains unattractive.

Continental European equities have a likely recession to negotiate and geopolitical tail risks, but the eurozone has never been this attractively priced versus the US.

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Morgan Stanley

Equities next year, however, are headed for continued volatility, and we forecast the S&P 500 ending next year roughly where it started, at around 3,900. Consensus earnings estimates are simply too high.

European equities could offer a modest upside, with a forecasted 6.3% total return over 2023 as lower inflation nudges stock valuations higher.

Pimco

The economy in developed markets is under growing pressure as monetary policy works with a lag, and we expect this will translate into pressure on corporate profits.

We therefore maintain an underweight in equity positioning, disfavour cyclical sectors, and prefer quality across our asset allocation portfolios.

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Schroders

Schroders expects 2023 to usher in a turning point for global equities after the sharp corrections seen year-to-date this year. Valuations are now at more attractive levels where investors may look to quality companies across markets for opportunities when the time is ripe, subject to recessionary risks and currently over-optimistic expectations on corporate earnings.

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Societe Generale

Fair value for the S&P 500 currently reads at3,650 based on our inflation moderation valuation framework. But we expect negative EPS growth in the first quarter, a Fed pivot in the second, China re-opening in the third and rising US recession risk in the fourth.

This should see the S&P 500 trading in a wide range of 3,500 to 4,000, around that 3,650 fair value. Ultimately, we expect the S&P 500 to end 2023 at 3,800.

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State Street

Non-US equities now trade at 12.17 times next year’s earnings, 20% below their historical median average of 14.94. The same is true under a shorter horizon, as US stocks trade on par and at 7% above their five-and 15-year median levels.

Meanwhile, non-US stocks trade 11% and 12% below their five- and-15-year median levels, respectively.

While risk is still likely to be elevated in the near term, if a policy pivot turns market pessimism to optimism and risk aversion declines, our view is that segments with decent fundamentals and attractive valuations may enter a repair phase more quickly than expensive areas.

Domestically oriented US small caps represent one of these possibilities

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TruistWealth

Our initial estimated 2023 S&P 500 range is 3,400 to 4,300 relative to the November closing level of 4,080. This is consistent with the average annual spread of 27% between a market high and low since 1950. The wide range should provide tactical opportunities.

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UBS

Stocks are pricing in only 41% and 80% probabilities of a recession in the US and Europe, respectively. Weak growth and earnings drag the market lower before a fall in rates helps it bottom at 3,200 in the second quarter and lifts it to 3,900 by the end of 2023.

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Vanguard

Last year’s bear market has improved our outlook for global equities, though our model projections suggest there are greater opportunities outside the US.?

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Wells Fargo Investment Institute

We expect earnings to contract in 2023 as the recession leads to declining revenues and profit margins. Valuations should rebound in 2023 to lift equity markets by year-end as early cycle dynamics begin to take hold.