Has the US stock market bottomed out?

The S&P 500 index, a popular and widely tracked benchmark for US stocks, fell 19.44% in 2022. As always, it’s impossible to predict what the markets will look like in 2023. Still, the likely levels and direction the index will take throughout 2023 are being projected by a number of economists, brokerages, analysts, and bankers. It’s unclear how many will hit their mark or miss by a mile.

A recent report talked about a slim chance that US stocks will have consecutive down years in 2023, as it is unusual for US stocks. However, history suggests that if they do, investors will have to prepare for yet another year that will be utterly awful. What may continue to keep the S&P 500 in check are the expectations of weaker earnings, poor management guidance, and a deeper economic slowdown.

Most important could be the tech sector earnings and outlook for the years ahead. Mirae Asset Mutual Fund in “ Insights on Passive Investment report” says – The earnings of technology and consumer discretionary stocks in Q4 2022, will be a barometer as “Q4” historically tends to be one of the best quarters from earning and profitability perspective. A grim picture in Q4 2022 will point out relatively more pain for tech companies in coming times coupled with increasing interest rates and downsize in appetite for a growth stock.

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This will also be important to gauge the valuations of tech stocks – are they low enough to bring the bulls back or do the valuations need to come down further?

For investors overall, 2022 was a letdown, especially for those whose portfolios were significantly skewed toward FAANG and other blue-chip firms. The only stocks that offered market investors any hope throughout the whole year were those in the energy sector.

Jose Torres, Senior Economist at Interactive Brokers, discusses the signs and the S&P 500 index levels to anticipate in 2023 in an exclusive conversation with Financialexpress Online. According to Morgan Stanley strategists, the index will initially see a drop before increasing by the end of 2023.

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The upside in U.S. Equity market fundamentals appears limited in the near term, even though a mild recession was arguably already priced into stocks at September’s lows. A bull case is less likely but could emerge to propel stocks to new highs if growth makes a rapid turnaround and inflation cools, is what the report adds.

Equities are inherently volatile and 2023 may not be much different. Before a direction takes hold in the market, there may be significant spikes in either direction. “We believe any strong directional bet by an investor can lead to being caught on the wrong foot. During these times appropriate diversification and focusing on long-term objectives remain quintessential. And, keep in mind that markets are always looking ahead, so any encouraging signs for the economy could send stock prices higher. Long-term investors may continue searching for opportunities among the best sectors and equities even if volatility remains high,” is what the report has in store for investors and traders in 2023.