JP Morgan Asset Management sees a better 2023 for stocks, even as big Wall Street banks warn of sharp falls.
- "The worst of the market volatility is behind us and both stocks and bonds look increasingly attractive," JP Morgan Asset said.
The past few weeks have seen an ever-louder chorus of Wall Street pundits put forward an increasingly grim outlook for the economy and markets in 2023, as the fallout of an all-out war on inflation by central banks.
Wall Street banks from Morgan Stanley and Bank of America to Deutsche Bank have warned that US stocks could plunge next year, due to an economic downturn and liquidity risks fueled by the Federal Reserve's interest-rate increases. Goldman Sachs CEO David Solomon sees just a 35% chance that the US economy avoids a recession.
Economist Nouriel Roubini, famously known as "Dr Doom" for his pessimistic predictions, has said equities could plummet as much as 25% if there's a recession.
But not everyone is buying it.
JP Morgan Asset Management and Janus Henderson Investors are among the high-profile asset managers that predict that the worst could be behind for financial markets, even though they may continue to face much volatility next year amid lingering economic challenges.
Following this year's selloffs, both stocks and bonds have priced in much of the economic risks expected for 2023, and that suggests both asset classes are now poised to advance next year, JP Morgan Asset Management strategists led by Karen Ward wrote in a report.
Most of the Fed rate increases in the current monetary-tightening cycle seem already completed, and that means one of the biggest risks for markets has now diminished, according Paul O'Connor, head of multiasset investments at Janus Henderson.
Investors can expect "solid returns from high-quality assets" next year, even though they may have to navigate continued volatility in financial markets, he wrote in a report.
Here's a selection of commentary and predictions from the two asset managers on 2023 investment prospects.
JP Morgan Asset Management
"Our base case sees a moderate recession in most major developed economies in 2023. We do not expect a lengthy, or deep, period of contraction," the asset manager's team wrote in their Investment Outlook 2023 report.
"There are already convincing signs that inflationary pressures are moderating and will continue to do so in 2023. The risks of a deep, housing-led recession of the type experienced in 2008 are low."
"Given the decline already seen in stocks and bonds, we believe that while 2023 will be a difficult year for economies, the worst of the market volatility is behind us and both stocks and bonds look increasingly attractive."
"Our 2023 base case of positive returns for developed market equities rests on a key view — a moderate recession has already largely been priced into many stocks. The broad-based sell-off in equity markets has left some stocks with strong earnings potential trading at very low valuations."
"We have higher conviction in cheaper stocks which have already priced in a lot of bad news and are offering dependable dividends. Value stocks are now quite reasonably priced compared with history. We have stronger conviction that value stocks will be higher by the end of 2023."
"We are more excited about bonds than we have been in over a decade. The income on offer from bonds is now far more enticing."
Janus Henderson Investors
"A reasonable central scenario is one in which investors can expect to achieve solid returns from high quality assets, albeit probably having to ride out plenty of turbulence along the way," O'Connor said in his report.
"With most of the rate hiking cycle now behind us and with asset valuations notably more attractive than they were at the end 2021, 2023 should be a better year for investment returns than 2022."
"After 2022's aggressive repricing, the upside to rate expectations now looks fairly limited, suggesting that most of the difficult news has probably been priced into financial assets."
"Consensus predictions of real GDP growth for 2023 now stand at 0.4% for US, -0.1% for eurozone and -0.8% for the UK. These forecasts envision a slowdown in the US and eurozone that will be the gentlest and shortest that could be called a recession."
"The first half of the year is likely to be an environment of persistent earnings downgrades, which will probably present a continued challenge to investor sentiment. Still, even if growth dynamics do turn out to be problematic for risk assets, the prospect of interest rates peaking offers some cause for optimism."
"History shows that equities usually perform well after the last Fed hike in each cycle, except when they were unusually expensive."