2023 H1 Recap | Goldman & JPM Are Wrong in 2023 Outlooks?

As we approach the end of the June, some investors begin to forecast the stock market in the next half. Let’s look back at how we did the analysis at the beginning of the 2023.

Most retail investors gained information by reading the report and outlooks released by institutions. Let’s find out if Goldman Sachs and JPMorgan are right or wrong in forecasting economy and stock market in 2023. The source are from Goldman and JPMorgan’s official website.

Both of them are wrong at predicting the stock market trends in the first half as $S&P 500(.SPX)$ are trading at 4300.

They are also wrong in terms of interest rates and inflation. The benchmark rate is now at the range of 5%-5.25% and the market is expecting at least another 25bps.

May CPI is 4%, higher than the prediction of 3.5% by JPMorgan.

However, Goldman Sachs is right at predicting “no recession“ in US as other institutions claim a “mild recession“.

Although JPMorgan expects Japan market to be resilient, Japan market still gave us a surprise.

J.P. Morgan Research suggests a challenging year for the stock market and the global economy in 2023

1. Stock Market: J.P. Morgan expects $S&P 500(.SPX)$ to re-test the lows of 2022 in the first half of 2023 due to tightening financial conditions and weaker fundamentals.

However, they anticipate a subsequent asset recovery and project the S&P 500 to reach 4,200 by the end of 2023.

2. Fundamentals: The research suggests that fundamentals will deteriorate in 2023 as financial conditions tighten and monetary policy becomes more restrictive.

A mild recession is expected, accompanied by a contraction in the labor market and a rise in the unemployment rate to around 5%.

3. Consumer and Corporate Spending: Consumers and corporates are expected to cut discretionary spending and capital investments more meaningfully, leading to a negative impact on the economy.

4. International Markets: The convergence between the US and international markets is expected to continue in 2023. While continental European equities face a likely recession and geopolitical risks, the eurozone is considered attractively priced compared to the U.S.

Japan is expected to be relatively resilient due to solid corporate earnings, attractive valuation, and lower inflation risk.

5. Commodity Outlook: J.P. Morgan Research forecasts an average Brent crude oil price of $90 per barrel in 2023, with a strong demand growth of 1.3 million barrels per day. The OPEC+ alliance is expected to keep the oil market balanced.

Base metals are projected to recover in the last few months of the year, while precious metals like gold and silver are expected to have a more positive outlook.

6. Interest Rates and Currencies: The Fed is anticipated to continue tightening in 2023, with an expected cumulative hike of almost 500 basis points. This tightening is predicted to lead to a mild recession in the U.S.

The dollar is expected to strengthen further, although to a lesser extent than in 2022. Lower-yielding currencies like the euro may be more insulated as central banks pause rate hikes.

To learn more about JPMorgan’s report, you can click https://www.jpmorgan.com/insights/research/market-outlook

Goldman Sachs: This Cycle Is Different

1.Stock market: While 2023 will be less painful, Kostin expects “less pain but also no gain.” Goldman's 3-month price target for the S&P 500 is 3600, the 6-month target is 3900 while the U.S. benchmark index should close the year at 4000.

2.Global growth is expected to slow down to 1.8% in 2023, with the US showing resilience while Europe faces a recession.

However, Goldman Sachs believes that the US will avoid a recession despite factors such as a diminishing reopening boost, declining real disposable income due to high inflation, and aggressive monetary tightening.

Real disposable income has rebounded in the latter part of 2022 from the lows experienced in the first half of the year when initial rate increases caused a sudden shock to household budgets.

Current inflationary cycle is different from previous high-inflation cycles. In previous cycles, a hot labor market led to excessive employment, whereas in the current cycle, there have been an unprecedented number of job openings without a significant increase in employment levels.

They expect employment levels to normalize post-pandemic, leading to a slowdown in wage growth that aligns with inflation targets.

3.International markets: While near-term risks of a deep recession have receded somewhat and our commodity strategists now look for a more limited rise in European gas prices next summer, we don’t expect GDP to rebound sharply in Europe once it exits a mild recession.

4.FOMC: Goldman Sachs expects the FOMC to slow the pace of rate hikes as it shifts to fine-tuning the funds rate to keep growth below potential, but to ultimately deliver a bit more than is priced, with a 50bp hike in December and three 25bp hikes next year raising the funds rate to a peak of 5-5.25%.

To learn more about Goldman Sachs’ report, you can click https://www.goldmansachs.com/intelligence/pages/gs-research/2023-us-economic-outlook-approaching-a-soft-landing/report.pdf