Weekly Brief: Big Banks Are Making Big Predictions

Weekly Brief: Big Banks Are Making Big Predictions

over 1 year ago3 mins

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Big banks and investment management firms have started rolling out their predictions for 2023, shifting investors’ focus to what’s to come next year.

🕰 Recap

  • Fidelity sees a recession coming, but the investment management giant highlighted attractive opportunities despite the downturn
  • And alternative investment firm Blackstone recently revealed where it sees risks and opportunities
  • Soon after, legendary investor Ray Dalio said he thinks stocks have further to fall.

✍️ Connecting The Dots

It’s the most wonderful time of the year: big banks and investment management firms are setting out their predictions for the year ahead, and revealing where they believe you should invest as a result. And while you should probably take analysts’ and economists’ forecasts with a pinch of salt, they’re well worth paying attention to. That’s because professional investors’ own expectations will be guided by these outlooks, ultimately helping to form a consensus about what to expect from the year to come. And that’s a big deal: financial markets often move based on how economic or company data looks against expectations, so having an idea of what those expectations are in the first place should serve you well.

Let’s kick off with investing legend Ray Dalio: he believes seemingly unstoppable inflation and a hefty recession are a recipe for stocks to tumble, and investment banks aren’t exactly disagreeing with him. Bank of America, for one, sees US stocks ending next year right around the level they’re at now, suggesting something of a roundtrip. Morgan Stanley agrees, and thinks European stocks will languish near their current level by the end of next year too. In fact, the investment bank doesn’t see much reason to pile into stocks at all next year, and suggests investors look toward government and corporate bonds instead.

On the macroeconomic front, investment managers Fidelity and Blackstone are singing from the same hymn sheet: they’ve both highlighted the major risk – 80% according to Fidelity – that the US falls into recession next year, along with the UK and eurozone. Layer on still-high inflation and still-rising interest rates, and they expect company profit margins to feel even more pressure – and that backs up Dalio, Bank of America, and Morgan Stanley’s predictions. But hey, let’s end on a more optimistic note: Credit Suisse and Goldman Sachs both think the US could avoid a recession altogether next year, and that could mean the worst – economically speaking – would be behind us by the middle of next year.

🥡 Takeaways

1. How to play 2023.

Plenty of big banks seem to agree on one thing: there will be less growth, more inflation, and higher interest rates next year. So when it comes to your portfolio, the likes of Morgan Stanley suggest that investors back high-quality corporate bonds and emerging market bets, and avoid riskier-but-higher-paying bonds and US stocks. But if avoiding stocks seems like a tough tonic, you could check out Bank of America’s take: it sees stocks that can offer steady income as the best of the bunch, and that’s typically the ones paying high and stable dividends – like those in defensive sectors like utilities and consumer staples.

2. There’s wisdom away from the crowd.

Expert analysts and economists aren’t always right, mind you, even when a lot of them are forecasting the same thing. A “contrarian” investment strategy aims to profit from that fact, and suggests that stocks may be most likely to fall when everyone is wildly optimistic – and that they’re ready to rebound when pessimism’s at its peak. Just take the S&P 500: according to Bank of America, it’s the most crowded bet in the world, so betting against it rising (though risky) could set you up to profit if things turn out worse than analysts are expecting.

🎯 Also On Our Radar

A slew of US retailers announced stronger-than-expected earnings updates last week. Their stocks jumped afterward, following in Walmart’s footsteps from earlier this month. In short, it turns out the bleak forecasts retailers made back in the spring weren’t quite as dire as feared.

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Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.

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