The direction of the market will be determined by the prospects of a potential recession, predicts the article in Proactive Advisor Magazine. With the Fed expecting even more rate hikes in 2023, the likelihood of a recession next year has also increased.
According to Ned Davis Research cited in the article, the economic outlook is what drives the more than 18% drop and subsequent rebounds, although the article notes that the market doesn’t necessarily go into a “V” during a recession. ” is low. If the Federal Reserve continues on its hawkish path, indicators reviewed by the team at Proactive advisor indicate that a recession is becoming more and more likely. Liquidity reached a record low; along with falling nominal and real M2 money supply, this indicates a recession, although the article is quick to point out that these levels are usually reached at the end of a recession, not at the beginning. The next indicator will be the inverted yield curve; it also indicates a recession, although it usually takes time. The third indicator will be a spike in unemployment, and while the unemployment rate is at an all-time low, hiring plans show that a major spike in unemployment is on the horizon next year. Higher unemployment often leads to lower demand, which will lead to lower margins, which is often associated with a recession.
Before providing an estimate of SPX’s operating income for 2023, Proactive advisors wanted to consider the possibility of a recession; given the metrics in their research, they set a valuation of $220 per share, stating that “[w]We want to be careful not to become overly negative on risk assets because we believe that weaker economic data before the start of 2023 is likely to lead to an actual Fed pivot,” which is expected to lead to a more upbeat market conditions after the current “autumn slump”. » As for what investors should do now, the article advises against making big bets until the Fed offers solid economic data.