#92 - Q4–22 is arrived. What we could expect in 2023?

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Q4–22 In this article you’ll find:

Q4–22 How is going to be the end of the year

Q4–22 Why we could have a rise in unemployment rate

Q4–22 Deep recession is arriving

Q4–22 Earnings will be more under pressure

Here you can find other articles:

Q4–22 Barclays — Corporate and Investment Bank

The world economy was hit by three shocks over the past quarter: a massive drop in Russian gas supplies to Europe, repeated lockdowns in China, and very aggressive policy tightening by Western central banks. The stage is now set for a synchronous global slowdown.

Big economies are struggling

Advanced economies will likely contract in Q4 and have virtually zero growth next year. Our analysts see a deep recession in Europe starting in the fourth quarter, with the economy shrinking over 1% over calendar year 2023.

The US should have slightly negative growth as Fed hikes and the dollar surge hit the economy. China should have a small bounce, but far below its 5.5% target.

Our analysts have taken down 2023 GDP growth by 80 basis points, to 4.5%. And 2022 is turning out to be weak: our analysts now expect that economy to grow just 2.6%, almost as tepid as in 2020.

All told, the global economy should grow at just 2.2% in 2023. That is a startling come down from the 6.3% rate in 2021.

We see rate hikes here, there, and everywhere

There is no pivot in sight because consumer prices are still too elevated for comfort.

Even if CPI prints moderate in the next few months — and it is possible in the US, with oil prices dropping through the third quarter — the problem is the starting point.

Annual US inflation above 8% is simply too high, and the longer it stays there, the more the Fed will worry about high wage expectations getting embedded.

Surging inflation, falling growth, and central banks on the warpath — our analysts think there is little wonder that the macro-outlook looks bleak.

Our analysts are still bearish on most risk assets, but they feel as if much of the adjustment has already occurred. They see that there is now more two-way risk for investors, and market narratives could change quickly. We see more gloom than doom.

Q4–22 Merrill Lynch — Bank of America

Macro Strategy — Signals at Bear Market Bottoms

Based on macro analysis of six S&P 500 bear markets that led into recessions, this bear might have room to run.

In length if the June trough holds this bear market would be relatively short. Cyclical momentum, as

gauged by the Institute for Supply Management (ISM) manufacturing index, also has tended to bottom at a much lower level than current readings.

Earnings have typically been deep into a contractionary phase at market bottoms but are just now coming under pressure. The unemployment rate also historically increased significantly before Equities find a floor.

Perhaps most importantly, a monetary policy pivot might be necessary to fuel a sustained market turnaround, and inflation continues to run hot enough to make that unlikely.

When Bad News Meets Poor Sentiment

The combination of disappointing inflation-related news and poor investor sentiment rattled markets last Tuesday.

The perceived-negative August print whipsawed the market, piling on the yearto-date (YTD) 17% decline for the S&P 500.

It’s the first year since 2016 that the S&P 500 more frequently closed in negative territory rather than positive. As a typical source of volatility, inflation moderation may be unpredictable and rough for markets to stomach.

We maintain a neutral view on Equities as risks to economic growth and corporate profits remain skewed to the downside.

Signals at Bear Market Bottoms

Excluding the pandemic-induced recession of 2020, the current bear market that began in early January is tracking the average of the last six bear markets that led into recessions — 1968–1970, 1974, 1980–1982, 1990, 2001, 2008.

On balance, historical analysis of these data suggest this bear market may have room to run. First, it has still been relatively short in comparison.

Second, cyclical momentum, as gauged by the ISM manufacturing index, likely has not bottomed and has often been a prerequisite for a bear market bottom.

The unemployment rate has also typically risen significantly in advance of market bottoms. And the nonfinancial profits cycle have tended to deteriorate before the market finds a floor, a process that is just now beginning with earnings downgrades.

We would remain cautious on risk assets.

Q4–22 BlackRock

Q4–22 Market views from BlackRock Fundamental Equities

As the Fed walks the line between curbing inflation and averting recession, anxious investors are seeking to balance the two risks. Amid the uncertainty, we believe stock selection matters more.

Inflation peaks and market rallies often go hand in hand. Since 1927, the average S&P 500 return in the 12 months following an inflation crest was 11.5%.

A time for growth and value

Value stocks have a history of outperforming growth amid high (4.5% and above) and even moderate (1.1%-4.4%) inflation, based on our analysis of data back to 1927.

We see inflation contracting slowly and settling above the roughly 2% level seen in the prior 10 years, a still supportive backdrop for value.

Meanwhile, recession is a growing risk as the Fed remains laser focused on combating inflation through higher rates, which crimp economic growth. In this scenario, growth stocks typically have a performance edge given their potential to outpace the slow-growing macro environment.

The ongoing transition in the economy and markets is likely to be bumpy.

At this early stage, with inflation just having peaked, investors may be overestimating the speed at which shorter-term dislocations in the economy can normalize (e.g., strong employment alongside high inflation) and underestimating the magnitude and duration of the longer-lasting components of inflation (e.g., wages and shelter costs).

Further confirmation of an easing in headline CPI could be supportive of equity markets in the near term, but we are watching company earnings for signs of stress as Fed rate hikes impact the real economy with a lag.

Today’s market is complicated ― it’s full of risks and rewards. We believe active stock selection can add real value here.

Q4–22 My conclusions

Q4–22 is arrived and we have to understand how it could go the end of the year for the markets and especially how will be the new year.

Now the indicators are not comfortable, but as bad news arises on the markets, good ones are presents.

When there is bear market on the street, the best opportunities are present, so be happy.

Inflation rate should fall over coming quarters, analysts see a deep recession and the bear market have room to run.

The Fed will follow their way and the unemployment rate is too low yet.

The 2023 earnings are already under pressure and in my view this pressure will growth over the next months.

Q4–22 Institutional Considerations

The world economy was hit by three shocks over the past quarter: a massive drop in Russian gas supplies to Europe, repeated lockdowns in China, and very aggressive policy tightening by Western central banks.
Analysts see a deep recession in Europe starting in the fourth quarter, with the economy shrinking over 1% over calendar year 2023.
The US should have slightly negative growth as Fed hikes and the dollar surge hit the economy. China should have a small bounce, but far below its 5.5% target.
Analysts now expect that economy to grow just 2.6%, almost as tepid as in 2020.
The global economy should grow at just 2.2% in 2023. That is a startling come down from the 6.3% rate in 2021.
Analysts are still bearish on most risk assets, but they feel as if much of the adjustment has already occurred.
Based on macro analysis of six S&P 500 bear markets that led into recessions, this bear might have room to run.
Earnings have typically been deep into a contractionary phase at market bottoms but are just now coming under pressure.
The unemployment rate also historically increased significantly before Equities find a floor.
The unemployment rate has also typically risen significantly in advance of market bottoms.
Value stocks have a history of outperforming growth amid high (4.5% and above) and even moderate (1.1%-4.4%) inflation, based on analysis of data back to 1927.

Q4–22 Institutional Considerations

Recession is a growing risk as the Fed remains laser focused on combating inflation through higher rates, which crimp economic growth. In this scenario, growth stocks typically have a performance edge given their potential to outpace the slow-growing macro environment.
Today’s market is complicated ― it’s full of risks and rewards. We believe active stock selection can add real value here.

Join the conversation with your own take on these topics in the comments below.

About the Author

Alessandro is a Financial Markets enthusiastic and he loves learning from articles/papers on many financial topics and in doing so he shares with you the most interesting charts and comments.

Disclosure

This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. This material has been prepared for informational purposes only. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.

#92 – Q4–22 is arrived. What we could expect in 2023?