The stock market is likely headed for its worst year since the Great Financial Crisis in 2008, with major indexes like the S&P 500 and Nasdaq Composite down about 19 and 32 percent, respectively, in 2023. But investment professionals surveyed in Bankrate’s Fourth-Quarter Market According to the Mavens survey, investors can expect some relief in 2023. The group of analysts expects the S&P 500 to rise 8 percent over the next 12 months, the ninth straight quarter that the group has forecast gains.
Survey respondents predict the S&P 500 will rise to 4,243 points in the coming year, up from 3,934 when the survey period ended on December 9, 2023. The experts strongly favor U.S. stocks over international markets, and value equities over growth stocks.
“If respondents are right and the stock market will rise in the coming year, that would likely coincide with at least some other positive developments, namely lower inflation and a less hawkish Federal Reserve,” said Mark Hamrick, senior economic analyst at Bankrate . “However, uncertainty remains very high in the coming months, and this also applies to the investment climate.”
“For most investors, slow and steady wins the race,” Hamrick added. “Although there is intense interest in the daily movements of the stock market and individual issues, most mere mortals are unable to time the market successfully. That’s why staying invested is critical for long-term investors.”
Forecasts and analysis:
This article is one in a series discussing the results of Bankrate’s fourth quarter Market Mavens survey:
- Pros expect a modest rally in stocks in the coming year, despite growing fears of a recession
- Ten-year government bond yields will rise even further in the coming year, experts say
- This is when professionals see the next bull market coming and whether crypto can make a comeback
The shares are expected to bounce back next year
Stocks have had a rough year, with both the S&P 500 and Nasdaq in bear market territory, while the Dow Jones Industrial Average is down about 9 percent in 2023. Investors have withdrawn their risk as the Fed raises rates to combat high inflation and concerns are growing that the economy is heading for a recession. Inflation has moderated recently, but the Fed raised rates by half a percentage point at its last meeting in December.
While the group of experts has been steadily bullish on stocks throughout 2023, the fourth quarter survey saw their enthusiasm wane. They expect the S&P 500 to rise 7.8 percent over the next 12 months, compared to 11.9 percent in the third-quarter survey and 12.3 percent in the second-quarter survey.
“We see a recession in the first half of next year, which will reduce inflation and allow the Fed to cut rates in the second half,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “That should see stocks bottom out in the first half and start looking towards an economic recovery.”
But other analysts think it will take longer for the Fed to cut rates.
“The market will be mispriced if the Fed continues to raise rates as they have suggested and recent economic data shows this is necessary,” said Charles Lieberman, chief investment officer at Advisors Capital Management. “Inflation is unlikely to slow down anytime soon, so interest rates need to go higher and stay high for longer. The rate cuts needed to restart the economy will therefore probably have to wait until 2024.”
Most experts believe that five-year stock returns are consistent with the historical average
The vast majority of respondents to the survey expect returns over the next five years to be in line with historical averages. Fewer experts expect higher than normal returns over the next five years than in the previous survey.
Here’s how the numbers break down:
- About 64 percent of respondents say returns over the next five years will be about the same as their historical average.
- About 29 percent say returns will be lower than long-term returns.
- About 7 percent say returns will be above historical averages.
The results show a decline in experts’ forecasts compared to the previous survey, when around 27 percent expected returns to be higher than normal over the next five years.
“With valuations still close to historical averages and a recession looming, returns will be close to historical averages,” Samana said.
Briefing.com chief market analyst Patrick O’Hare agrees. “We are on the path to normalization, albeit a bumpy one, but now that the Fed has retired and the animal spirits have been tamed as a result, yields should be closer to their historical averages,” he says.
But other analysts think slower growth will hamper stocks and lead to below-average returns over the next five years.
“Economic growth and earnings growth are likely to be slightly lower than historical averages,” says economist Hugh Johnson, which he believes will lead to underperformance for the stock market relative to the long-term average.
American stocks remain heavily favored by analysts over international stocks
Survey respondents still largely favor U.S. stocks over international stocks over the next 12 months. Here is an overview of the responses:
- About 71 percent of respondents favor US stocks in the coming year.
- About 21 percent prefer international stocks.
- About 7 percent said returns would be about the same between the two.
In the previous quarter’s survey, 91 percent preferred U.S. stocks, 0 percent preferred international stocks and 9 percent said returns would be about the same.
While most analysts favor US stocks, this is at least partly due to the belief that a US recession next year will have a meaningful impact on international economies.
“If the US experiences a recession in 2023, other global economies will feel the impact,” O’Hare said. “China is an outlier that could outperform the US if it actively distances itself from zero COVID policies, but all else being equal, the US market should continue to gain favor for its rule of law, deeper liquidity and location for global industry. leaders who have the financial resources to meet a challenging economic environment.”
Michael Farr, chief market strategist at Hightower Advisors, also sees the US outperforming international markets. “The US will be the least bad house in a tough neighborhood,” he says. “Global economies will continue to battle inflation, Ukrainian war pressures and a continued slowdown in China.”
Dec Mullarkey, director of investment strategy and asset allocation at SLC Management, is one of a handful of analysts predicting international stocks will outperform the US.
“Expect U.S. stocks to deliver modest returns as growth and earnings level off,” Mullarkey says. “But global equities (excluding the US) should outperform thanks to attractive valuations and a weaker dollar as Fed rate hikes level off.”
Experts prefer value stocks over growth stocks in the coming year
In contrast to the third quarter survey, analysts now strongly expect value stocks to outperform growth stocks in the coming year. The preference for value stocks reflects concerns that a recession is coming and that growth stocks’ earnings growth may be under pressure.
Here is an overview of the responses:
- About 71 percent of respondents prefer value stocks over growth stocks in the coming year.
- About 21 percent prefer growth stocks that outperform value.
- About 7 percent think returns will be about the same.
This is the eighth of the past nine quarters in which value stocks have been favored over growth stocks.
“Economic growth will be sub-par and uneven as higher interest rates dampen activity and various geopolitical challenges take their toll,” Mullarkey said. “After that, earnings will come under pressure, causing defensive and value stocks to outperform growth.”
“During tough economic times, companies that sell things people need are more likely to survive,” says Hightower’s Farr. “These are not the fast-growing companies.”
Other analysts see greater upside for growth stocks as the potential for a recovery or new bull market develops in 2023. Growth stocks have dramatically underperformed value stocks in 2023.
“The sectors that have fallen the furthest in a bear market tend to outperform the market in the first 12 months of a new bull market,” said Sam Stovall, chief investment strategist at CFRA Research.
Methodology
Bankrate’s Q4 2023 survey of stock market professionals was conducted via an online survey from December 1 to 9. Survey requests were sent by email to potential respondents across the country, and responses were submitted voluntarily through a website. The responses included: Jim Osman, founder of The Edge Group; Dec Mullarkey, Managing Director, SLC Management; Sam Stovall, chief investment strategist, CFRA Research; Michael Farr, CEO, Farr, Miller & Washington; Hugh Johnson, Chief Economist, Hugh Johnson Economics; Patrick J. O’Hare, chief market analyst, Briefing.com; Chuck Carlson, CFA, CEO, Horizon Investment Services; Louis Navellier, CIO, Navellier & Associates, Inc.; Kim Forrest, chief investment officer/founder, Bokeh Capital Partners; Charles Lieberman, managing partner and chief investment officer, Advisors Capital Management; Kenneth Chavis IV, CFP, senior investment manager, LourdMurray; Sameer Samana, senior global market strategist, Wells Fargo Investment Institute; Brad McMillan, head of investments, Commonwealth Financial Network; Marilyn Cohen, CEO of Envision Capital.
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
