Stocks 2023 – What are the bigger risks?
Monik Kotecha, CEO of Insync Funds Management, says sidetracking could pose more risk than investing next year.
Tuesday, December 27, 2022 at 3:51 PM
by InSynch
Monik Kotecha
There’s no denying 2022 was a difficult year for equities, but as one US commentator recently noted, a year like 2022 when the S&P fell 18% or more was followed by a return of 20% or more. was. For the last 90 years, every time. In addition to this, several other key factors identified by Insync suggest that standing on the sidelines may pose greater risks than the investment.
As we enter 2023, sitting on the sidelines may pose more risk than investing.
All mothers, brothers, sisters, cousins and uncles are negative for the first half of 2023.
Wealth destruction was a major theme in 2022. Global stock market capitalization fell by US$15 trillion while global bond markets wiped him worth US$30 trillion. Nearly all asset classes fell. Oil held up, rising strongly in the first half of the year, but adjusted as global growth expectations declined, ending the year flat.
The US dollar was the biggest winner, up 9% year-to-date. Cash, which was considered “garbage”, rose 1.8%. Throughout 2022, the global economy was marked by high inflation, slowing growth, and tight monetary policy. Rising inflation and slowing growth have created concerns of stagflation.
However, we believe the market could pick up in 2023.
Impact in 2022
There’s no denying 2022 was a difficult year for equities, but as InvestorPlace’s Luke Lango, Senior Investment Analyst in the US, recently pointed out, the S&P fell more than 18% in 2022, as well. , for the past 90 years, every year of 20% plus returns.
Either the stock price did not skyrocket for the first time in 90 years, or the stock price will rise more than 20% in 2023.
| Year | return |
Continue
|
|---|---|---|
|
1937
|
– 38.59
|
25.21
|
|
1941
|
-17.86
|
12.43
|
|
1974
|
– 29.72
|
31.55
|
|
2002
|
-23.37
|
26.38
|
|
2008
|
– 38.49
|
23.45
|
|
2022
|
– 19.51
|
???
|
Source: Investor Place
Sentiment at the end of the year is very negative, which is a good contrarian indicator. The average forecast of Wall Street’s top strategists is usually for the S&P 500 to rise by about 10%, which is in line with the historical average. The Pro is unusually cautious this time around and most expect the S&P to underperform him in 2023.
Bank of America’s survey of fund managers shows that fund managers’ relative positioning of equities and bonds is at its lowest level since 2009. The fund manager also holds the highest level of cash (5.9%) since his 2000/01 tech bubble burst.
The consensus view is that earnings will fall further in 2023, which remains the top concern of investors. The market (buy-side) tends to look 6-12 months ahead than the sell-side analyst, predicting earnings declines before they actually occur.
Earnings historically hit bottom after stocks hit bottom. Since 1950, earnings growth troughs have lagged the S&P 500 trough by about six to seven months. Stocks tend to go higher before we see improvements in earnings, GDP and employment. October 2022 likely marked a low for stocks, discounting earnings declines before sell-side analysts.
looking to the future
As we enter 2023, we believe being on the sidelines can pose greater risks than investing. Here’s why:
The US midterm elections will take place in November 2022. Historically, the S&P 500 has outperformed the market with an average return of 16.3% in his 12 months after the US midterm elections, and has not delivered a negative return during this period in the last 60 years. Year.
Inflation may still be temporary
Many argue that inflation is much stronger than the market currently expects and that it will take years for prices to stabilize (2% inflation). However, we continue to believe that the rise in inflation is a result of the pandemic shock. As pandemic-related economic turmoil returns to normal and the Federal Reserve continues to tighten monetary policy, inflation may eventually return to pre-pandemic levels.
A further area of concern as a result of the pandemic is declining labor market participation rates. This could lead to persistently higher wage inflation and lower productivity.
Today, we live in a golden age of technology and innovation, which is believed to be driving deflation for two main reasons.
- Technology reduces demand for labor, puts downward pressure on wages and employment levels, and reduces demand for goods and services because workers spend less money.
- Technological innovation also leads to automation, tools that make workers more efficient, and the elimination of some jobs.
So where are the opportunities?
We find that the long-term cash flows and valuations of companies exposed to megatrends remain unchanged as a result of rising interest rates and a slowing global economy. Megatrends are unstoppable long-term growth trends with profitable industry structures.
This is just one example.
The 60+ cohort is set to more than double to 2.1 billion by 2050. This is what we call a demographic megatrend. The most aging group within this cohort is the He’s 70 to He’s 75 age group, and this is where we’ve identified key investment opportunities.
As the population ages, so does the incidence of chronic diseases. Older people often suffer from multiple chronic diseases at the same time. Cancer is the second leading cause of death between the ages of 70 and his 75, after heart disease.
Changes in interest rates, inflation, and economic recession will not dampen demand for companies that provide cancer drugs. These factors will change neither the aging trajectory of the population nor the increasing demand for chronic disease solutions.
The current volatile market conditions present an opportunity to invest in profitable businesses at low prices, benefiting from megatrends.
See https://www.insyncfm.com.au/ for more information.
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