World Bank Predictions for 2023: Is Crisis arriving in Stock Markets?

Will this year be as bad or worse for stock markets than 2022? Or should we expect an improvement? We sought the answer to this question from the most knowledgeable - analysts of the world's leading banks.

2022 was the seventh worst year in history for the S&P 500, losing nearly a fifth of its value. However, the start of this year has so far been very successful for the US stock markets, with the index gaining almost 5% and hovering near the key psychological threshold of 4000 points. However, there are still many dangers in the market. So today, let's pick the most educated brain in this matter - the analysts of the world’s biggest banks. What do they expect from the US markets in 2023?

However, as you read this article, please keep in mind that even the big banks are not the bearers of guaranteed information. We don't have to go far - for example, not many people expected such a big fall in the US markets last year. Perhaps that is why banks are proceeding more cautiously with their forecasts for this year, as is evident from the wide range of target prices for the S&P 500 index.

However, 2023 is likely to be a more readable year than the previous one. Unless something unexpected happens, which is something we do not want. But now to the predictions themselves, you will find them below together with our own analysis and commentary. So which scenarios are likely and which ones don't make much sense? Buckle up!

S&P 500 target forecast for 2023 by global banks

 

Source: Investing

Bank

S&P 500 target for 2023

Deutsche Bank

4500

Jeffries

4200

JP Morgan

4200

Wells Fargo

4200

Credit Suisse

4050

Bank of America

4000

Citigroup

4000

Goldman Sachs

4000

HSBC

4000

Morgan Stanley

3900

UBS

3900

BNP Paribas

3400

 

How to use this information to your advantage in trading?

It is clear from the above estimates that the world’s biggest banks agree that we are in for another very interesting year. The most bullish vote ever belongs to Fundstrat, which expects the S&P 500 to rise by another almost 20% to 4,750 points during 2023, which would be an all-time high. Of the big banks, then, the most optimistic view belongs to Deutsche Bank. The most frequently cited value is 4,000 points, which coincidentally is also the current level of the S&P 500. The average target price after a survey of 23 banks is at 4080 points. If that expectation is met, many of the buy-and-hold style investors are in for a lean period, yet again.

 

However, we certainly don't expect the markets to "move sideways" this year. It is quite likely that we will see a lot of volatility again and the S&P 500 may have a very thorny road to that 4000-point mark. Active index and stock traders in particular may benefit from this. The ideal tool here is CFD stocks, where you can speculate on a price drop and make potentially very good profits (take inspiration from the TOP 3 CFD stocks for December 2022, for example).

 

Many opinions even expect the S&P 500 to fall further. The most skeptical is, for example, BNP Paribas, which has a price target of even 3,400 points. What are the main risks to watch out for this year? And which scenario is more likely?

 

S&P 500 index on the D1 timeframe in the MT4 platform. The chart shows bullish rallies in the summer and autumn during the earnings season.
S&P 500 index on the D1 timeframe in the MT4 platform. The chart shows bullish rallies in the summer and autumn during the earnings season.

What to watch out for this year according to JP Morgan?

The largest US bank JP Morgan expects a very volatile year. With stock markets to reach their bottom as soon as during the first half of the year. JP Morgan sees the main reason for this in the Fed’s tightening monetary policy. According to the bank, it will raise interest rates above 5% because of weak fundamentals. The bank then expects a retest of the annual low, which is around 3500 points on the S&P 500 index. This year will also be accompanied by falling inflation in the US, rising unemployment, and falling corporate profits. According to JP Morgan, these factors should convince the US central bank to turn around and start cutting interest rates again. This turnaround should result in a rise in US share prices.
 

Which moment will be the key one for investors?

It is therefore crucial for investors to watch for the first signs of interest rate cuts when the Fed Governor speaks. It is this moment that could be the catalyst for longer-term growth. Bank of America shares the same view but is more cautious about the S&P 500 moving back higher - as evidenced by its target price of 4,000 points. The risk, however, is a too-early cut in interest rates, which could return inflation to the markets. And no one among US central bankers wants that.

The market is now considerably more optimistic in this regard - it expects terminal interest rates to be in the 4.75% to 5.00% range and then one or two rate cuts before the end of the year. However, this does not correspond with the speeches of Fed officials who do not intend to cut interest rates this year. The market's excessive optimism may thus be the next catalyst for a sell-off, possibly at the next meeting in early February. The next one may be disappointing economic results.  
 

Probability of the level of US interest rates at the end of the year from CME Group. The market is currently pricing in one to two rate hikes, but this is not consistent with Fed speeches.
Probability of the level of US interest rates at the end of the year from CME Group. The market is currently pricing in one to two rate hikes, but this is not consistent with Fed speeches.

Earnings per share for the S&P 500 in 2023 according to Morgan Stanley

Economic results were one of the triggers for the big stock rally last year. This year, however, it may be the other way around - rising interest rates may reduce consumption, and inflation in turn raises the cost of labor and materials. This is what Morgan Stanley cites as one of the biggest risks. For the entire S&P 500 index, it expects earnings per share of $195, which would correspond to a 15% to 20% decline from current levels. However, in the second half of the year, it expects to return higher again and finish 100 points below current levels. Citigroup also expects a fall in profits, but it does not share the same skeptical view - profits will fall, but not by as much as the market expects.
 

However, even among banks, there are optimists

A fresh gust of air in terms of positivity in their expectations was brought by investment bank Jeffries. While it forecast a 6% year-over-year decline in EPS for the S&P 500, it also highlighted several positives. One is the weakening US dollar, which is boosting earnings at export-oriented companies. The Fed then says the bank will succeed in taming inflation, which peaked last June. The risk, however, is still a very tight labor market, with unemployment in the US even falling to 3.5%. However, the first sign of easing is lower wage growth for December. The opening up of China is also a positive - this is where the bank sees great potential for growth. However, it also expects the US S&P index to end the year 5% above its current level of 4200 points.

Important terms

Bearish / Bear market
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It is a designation for a falling market.
Bullish / Bull market
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It's a designation for a rising market.
Central banks
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A central bank is an independent institution that has the primary responsibility for a country's monetary policy. Other responsibilities of the central bank include the implementation of specific objectives such as reasonable inflation, currency stability and full employment. In addition, central banks act as supervisory authorities and monitor the activities of commercial banks in a country, issue regulatory orders, circulate money and act as the bank of the government of a country. Central banks play an important role in the forex market because they influence the exchange rate of the domestic currency through their policies. They often have a target exchange rate that the bank tries to maintain, for example, through market intervention or changes in interest rates.
FED
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The Fed is the central bank of the United States of America. The Fed's decisions not only have an impact on the US dollar, but often also on other currencies or commodities and stock indices. For this reason, the Fed's decisions are very closely watched by Forex traders.
Point
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The price expression of currency pairs based on the last decimal of the quoted price. If the price of EURUSD currency pair changes from 1.17455 to 1.17456 then the price changes for one point. The same way, if the USDJPY price changes from 110.124 to 110.123 a change of one point occurs.
Volatility
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Volatility indicates the volatility of the price of the asset. It shows how much and how often the price changes. High volatility increases risk and low volatility decreases risk.
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