The outlook for 2023 is foggy, with little agreement amongst forecasters on how the year may shake out. But everyone agrees that inflation and monetary policy will continue to be the main drivers of asset prices over the year.
The bull case for equities rests on the idea that inflation will come down faster than the economy slows, enabling the Fed to begin easing interest rates before too much damage has been done. If this scenario unfolds, we might expect a nice rally in the second half of the year. The most bullish case is for the S&P 500 to increase by 17% in 2023.
The bears see the Fed as likely to keep interest rates higher for longer, even if inflation starts to ease, and that corporate earnings are due for a larger than expected downturn. Also, they believe that inflation will not come down quickly, forcing the Fed to keep rates higher for longer. The most bearish forecase we reviewed was for the S&P 500 to decline a further…continue reading here.