Here are some 2023 predictions for financial markets, the economy and stocks.
I’ve spent the last year and a half being cautious in the wake of the Bubble-Blowing Bull Market that finally ended early in 2022. Following this year of turmoil, the timing may just be right for us to see the economy morph into something healthy for a while.
That would be unexpected in a world where so many CEOs and analysts are predicting hard times ahead.
Keep in mind that the markets and the economy are not the same. And now, onto some of the predictions and commentary.
1. ChatGPT and its AI ilk will spark another leap forward for worker productivity.
During 2023 we will see the initial blossoming of improved capability and efficiency as people in many walks of life embrace artificial intelligence. This will lead to a gain in productivity over the next three to five years that will rival what spreadsheets, word processors and the internet did over the last 30 years.
Companies will be more efficient and effective in handling their customers, their programming, their legal costs, etc. Economists will be talking about this as an ongoing theme by the end of next year.
Improved productivity will mean a shock to the upside for corporate earnings in 2024, and since the stock market always thinks ahead, AI will help lead a tech rebound in 2023.
2. The US economy will be one of the world’s strongest.
Aren’t we already in a recession? There was a debate a few months ago about whether or not two consecutive negative GDP growth numbers were or were not a recession. Certainly, the tech industry and the real estate industries are in their own recessions.
I expected a decent US economy with flattish corporate earnings in 2023. How’s that for a surprise?
3. The employment depression in tech/software engineering jobs will bottom by the middle of 2023.
During 2024, demand for such talent will be back on the rise.
4. Operating margins will expand.
Margins for Meta Platforms Inc. META,
Amazon.com Inc. AMZN,
and others in the tech space that have cut jobs and luxuries will expand. This will lead to a pretty good year for the FAANG group of stocks (Facebook holding company Meta, Apple Inc. AAPL,
Amazon, Netflix Inc. NFLX,
and Google holding company Alphabet Inc. GOOGLE,
GOOGLE,
) and mega-caps in general, with most up 10% to 15%.
5. The Federal Reserve won’t cut interest rates — the federal funds rate will be in a range of 5% to 6% for most of 2023.
The Fed won’t have to cut rates as the US economy stabilizes and begins to surprise to the upside by the end of the year. It is healthy for people to be rewarded for saving money in a bank or lending to a government.
As someone who has lived through Fed-driven bubbles and crashes during my nearly 30-year professional career, I would be thrilled to see a normal growing economy with near-natural interest rate levels for a few years.
6. Inflation will bounce from month to month.
CPI data will be the most volatile we have seen in decades. This is another reason the Fed will not be forced to cut interest rates.
7. We will end 2023 with two-year Treasury notes yielding 3% to 4% and 10-year notes yielding 4% to 5%.
That would be normal and healthy.
8. The stock market will be flat for the year.
The Dow Jones Industrial Average DJIA,
will pull back another 3% to 5%, the S&P 500 SPX,
will be flat and the Nasdaq Composite Index COMP,
will rise 5% to 10%.
Small caps will be wild to watch, as there are hundreds that will run out of money. Then again, some will be primed to roar back. I expected the iShares Russell 2000 ETF IWM,
to underperform the Dow.
9. Oil will drop to $50 or $60 a barrel and stick around there for most of the year.
OPEC+ member states will begin over-pumping while the US increases its supply. This will be a boon to the rest of the US economy, through it will also mean that earnings estimates for many energy companies will have to come down, putting pressure on their stock prices.
10. Bitcoin will bottom in the $9,000s.
After bottoming, bitcoin BTCUSD,
will bounce between $11,000 and $15,000 for most of 2023. Ethereum ETHUSD,
will bounce between $300 and $600.
There are still billions of dollars of “valuation” for a few hundred sill cryptocurrencies that will be wiped out in 2023, and the Securities and Exchange Commission and Department of Justice will “ride to the rescue” by finally bringing charges against some of the people involved in selling them.
11. The Space Revolution makes progress, while not quite taking off.
I would love to buy up some space stocks but we need to wait for the next batch of good private space companies to go public over the next two- to five years. I am holding onto Rocket Lab USA Inc. RKLB,
because I cannot believe that companies such as Boeing Co. BA,
or countries such as the UK would not want their own orbital launch capabilities. Rocket Lab may be purchased at a huge premium — it is valued at less than $2 billion right now.
Thank you to each and everyone of you for reading Revolution Investing on MarketWatch. Happy New Year!
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