Where to invest in stocks in 2023? Debate has begun over what direction the stock market might take and which sectors to focus on.
Where to invest in shares in 2023?
Next year remains a big unknown for many investors who are anxiously awaiting the restart of the stock market in the hope of the start of a new bull cycle. Many investment funds have shown themselves willing to invest in shares with a view to a restart. Likewise, the evidence shows a economic context that is still somewhat uncertain, more oriented towards new declines rather than a lasting continuation of the current Christmas rally.
The stock market will continue to rise in 2023?
2022 was a terrifying year for equity investors: the S&P500 came down up to 30% from its highs. The Dow Jones Industrial Average is up 20% from its September lows, the Nasdaq 100 is up 14.6%. However, many experts still remain positive about the end of the year. The Cboe Volatility Index (VIX) has also almost reached the minimum of 20, a value indicative of a certain tranquility on the part of traders and stock market operators.
Fears about rising inflation accompanied by tough monetary policy from central banks have caused fear among stock traders. Since October, however, the market has embarked on a new uptrend, the renowned "Christmas rally". Many argue that this is a clear sign of change in investment strategies of funds. The latter are taking long positions on the market in view of a easing of monetary policy due to a probable reduction of the inflation rate. Typically in November and December asset managers undertake portfolio adjustments and repositioning for the year ahead: this could indicate a bull market in 2023.
How are investment funds and banks positioning themselves on the market?
Some investment funds have already started recommending equity placements to clients. This is the case, for example, of Intigrity Asset Management which suggests the purchase of small capitalization companies in highly affected sectors in 2022.
The sectors in which bullish funds find themselves more inclined to invest turn out to be the healthcare companies, those linked to the transport sector and the industrial ones. What drives managers to go long is statistical convenience as rarely in the past the stock market remained bearish for two years in a row: in a century this type of scenario has occurred only four times.
However, the sporadic purchase of shares remains a behavior inexplicable by many given that by now the investment banks predict with presumable certainty the beginning of a recession in 2023. Basically, if this were to happen it is likely to expect quite significant economic damage, such as for the dot-com crisis. However, while the speeches by chairman of the FED Jerome Powell do not seem to communicate major concerns, they also do not suggest positivity.
In fact, some investment banks still continue to take bearish positions on the market: this is the case of Goldman Sachs which is more inclined to work with put options linked to the S&P500 rather than look for longs. Morgan Stanley analysts also agree on the fact that the bear market has not ended and predict a sharp collapse of the markets starting from first quarter of 2023, a period in which the S&P500 could reach 3,000.
Of course, there are also those who choose to stay out of the market waiting for more confirmations: the data in fact show an important increase exponential of the liquid assets in fund coffers, this value has reached its high of the decade. This may have negatively impacted the value of the VIX which actually fell to 20. Analysts at JPMorgan Chase also agree with the bearish view expressed by industry peers regarding the first half of 2023.
Where to invest in 2023? On shares, pay attention to the first semester
Several market observers expect declines in the first half of 2023. The reason lies in the unpleasant combination of an increase in labor costs and a decrease in corporate margins. In their opinion, the downgrading of earnings will manifest itself on the balance sheets of the quarter, alarming the stock market public. On average, experts expect a contraction in corporate earnings of 9% in 2023. Of course, the market moves on expectations and could therefore use the Christmas rally as an opportunity to hedge against the "June effect".
What’s more, several long-dormant indicators seem to have reawakened giving disheartening signals for long traders: Bloomberg’s handicappers tracked predicts a decline in the S&P 500 next year and this indicator has not given aggregate bearish signals since 1999. Even since the options market does not seem to show any positive signs: the demand for calls is decreasing while the money paid by traders for the put options protection marks new records.
Investing in shares in the second half of 2023
JPMorgan analysts likewise remain quite positive regarding the second half of 2023 , identifying the level of 4,200 as the target price for the S&P500. Monetary policy is likely to become less restrictive following the downsizing of the inflationary variable.
In that period, the conditions could even arise to hypothesize an adjustment of the fundamental variables of companies. According to this vision, by 2024 companies should be able to return to work with standard economic values.
Is it worth investing in shares in anticipation of 2023?
It is commonly believed that 2023 will be characterized by an increase in volatility, a factor that will complicate investment risk management. Furthermore, if the estimates coming from the investment banks were to come true, the S&P500 would not present such an attractive premium compared to current values. In essence, the risk/reward ratio still remains too unattractive.
It should be kept in mind that at the moment it remains particularly difficult to make accurate estimates regarding the future trend. There are so many variables at stake that the occurrence of the "surprise" effect seems obvious: often in the past the least probable hypothesis ended up being also the most truthful.
Basically, given the strong context of indecision, the time may have come to go in search of better alternatives: for example, there are many experts who have recently been watching the bond market with great interest.
Original article published on Money.it Italy 2022-12-03 17:03:00. Original title: Investire in azioni nel 2023: su cosa puntare?
