Summary of 2023 Market Outlooks from Major Banks/FIs
This post will briefly summarize the key points from the 2023 outlooks released by major financial institutions at the end of 2022. This breakdown includes many of the institutions, but not all. The key points are used to help determine each institution’s tone and stance (bullish/bearish). Also below is my opinion on the forecasts and what traders can take away from them. I look forward to comparing these forecasts with the true outcome a year from today. Let's begin with Goldman Sachs.
Goldman Sachs: Bullish Compared to Consensus
According to Goldman Sachs, global growth is expected to be low at an estimated 1.8% in 2023 due to issues such as a difficult reopening process in China and a recession in Europe. However, while other banks have consistently reduced their growth forecasts, Goldman Sachs' has remained optimistic. As shown above, they forecast a 35% recession probability compared to the 65% median forecast.
J.P. Morgan: Inflation to Decrease, Housing to Stabilize
According to J.P. Morgan, inflation is expected to decrease in 2023 due to improving supply chains and efforts to diversify energy sources in Europe. They are also optimistic that the governments protecting consumers from most of the effects of higher energy prices in Europe will continue to do so. Additionally, JP Morgan still supports stocks with strong earnings and low valuations in 2023.
For the housing market, they believe there is no need to be concerned about a housing crash as home prices will be supported by the limited housing stock available. The housing inventories support this at levels less than half of what they were in 2008. Generally, J.P. Morgan leans towards a bullish outlook in 2023 compared to their peers.
Morgan Stanley: Optimistic Q1, Continued Diversification From Tech
According to Morgan Stanley, the first quarter of 2023 is expected to be strong. The economy is viewed as resilient, and the majority opinion is that earnings will decline. However, Morgan Stanley is reducing their investments in large tech stocks in the US due to a decrease in bolt-on acquisitions and increased regulatory scrutiny. Morgan Stanley's outlook aligns well with the previous two institutions as more bullish than the consensus.
BlackRock: Pessimistic/Bearish Outlook, Market Has Changed
BlackRock's central themes for the future include three main ideas that challenge the previous three:
- Equity valuations do not accurately reflect expected future damage right now (bearish on the stock market, further downside, short)
- Frequent portfolio adjustments are necessary to effectively navigate a future with sustained inflation (pessimistic on inflation).
- Short-term government bonds and mortgage securities currently offer a good balance of income and risk (equities are at exceptionally high risk)
In addition, they emphasize that there has been a fundamental change in macro market conditions. This will reflect different, less sustained bull runs in the decades ahead. Overall, BlackRock believes that uncertainty will continue to be a persistent factor in the 2023 global markets. As a result, BlackRock considerably favors the likelihood of continued bearish market conditions compared to the consensus.
Deutsche Bank: Bullish on Lower Than Expected Inflation
Deutsche Bank forecasts that inflation will soon decrease, with a forecast CPI of 4.1% in the US. They also think that the market has already taken current inflation levels into account and that equities will perform well at the beginning of 2023 if inflation continues to decrease, as described below:
Stocks remain an essential component of a diversified portfolio. Decent overall price gains are expected in 2023, but with periods of perhaps substantial volatility
Deutsche Bank leans bullish compared to its peers primarily due to lower inflation expectations.
Apollo Global Management: Leans Bullish; Inflation Has Peaked
According to Apollo Global Management, there has been enough data to suggest inflation peaked in June 2022. Their analysis suggests a possibility of a soft landing by the Fed, which "should be bullish for asset prices."
They point to the sharp decline in container freight rates and truck transportation as positive developments for the macro outlook. In addition, Apollo notes a historical trend that indicates inflation taking at least two years before hitting the Fed's target (see chart above). Generally, the tone is more bullish than other institutional forecasts.
UBS Asset Management: Leans Bearish, Uncertainty in 2023
Echoing BlackRock's view, UBS sees sustained uncertainty in 2023. The general sentiment leans bearish due to the high degree of uncertainty. However, they also acknowledge the abundance of opportunity during times of fear and apathy (particularly in stocks). The main idea can be summarized as such:
Having enjoyed such calm waters for many years, we are now being challenged to imagine a world where unpredictability features permanently.
Takeaways
There is certainly a mixed bag of forecasts for 2023, with many institutions favoring a more positive outlook than I expected. BlackRock's outlook was most attractive to me as it offered a new perspective that was objectively pessimistic. As mentioned in my previous post regarding second-level thinking, traders may be able to find the most fruit where no one else is looking. BlackRock is acting more contrarian within the financial institutions and holding a firmer stance. Of course, as one of the world's most prominent asset management firms, BlackRock is not necessarily an underdog in this situation. However, evidence suggests their forecast may have additional merit due to contrarian success in 2022. This can be seen below:
As a trader or investor, it is essential to remember that the top analysts at the most successful firms often miss their targets. As shown above, analysts can miss by a significant margin. This can continue to happen in 2023, 2024, and so on. Remember, the information and stances the institutions have shared are public knowledge. We must be mindful that the market often does what most participants least expect. So, here is some food for thought: a potential takeaway is speculating that the outlooks announced are likely not to occur based on this idea.
I'm not at all convinced that these reports are useless though, as the person who wrote the tweet above suggests. The evidence provided by these financial institutions can be beneficial in seeing what impacts the macroeconomic environment and, consequently, the long-term markets. Moreover, the reports serve as trackers for what the institutions are observing, which is powerful since they are key market participants. However, I do agree with the idea that blindly trusting forecasts is foolish, particularly in trading. After all, the market's sentiment, as opposed to long-term macro influencers, is often the true driver of the broad market in the short term. Remember to keep an open mind and leverage new information, like the contents of these reports, in unique ways. Rarely is this type of information entirely useless or an absolute necessity, but rather a piece that forms the completed puzzle.
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