While last year’s theme was a “tug of war between earnings tailwinds and valuation headwinds,” 2023 is shaping up to be another challenging year for investors with “the Fed call[ing] the shots," Bob Doll explains in his annual list of predictions.
As he has for more than 30 years, Bob Doll, who now serves as Chief Investment Officer at faith-based investment firm Crossmark Global Investments, offers his annual top 10 predictions on the trends and issues he believes are positioned to shape the economy and markets for the coming year.
Doll recently assessed his 2022 predictions, where he noted that he made 7.5 out of 10 predictions accurately, which he says is consistent with his long-term average of 7-7.5 out of 10. At the start of 2022, Doll observed that the year was shaping up to be a more challenging one for investors, but by the end of it, the Chief Investment Officer says that it was a year for the “history books.”
So what does he foresee for this year? With this year’s theme focused on the Fed’s decision-making, Doll explains that the decisions they make will have a “profound impact” on earnings generation and the right multiple to put on those earnings.
The key economic question for 2023, he says, is whether central banks will be able to bring down inflation to acceptable levels without a recession. Doll’s firm expects the Fed to raise rates to 5% or more and keep the rate at 5% or above for the balance of the year as inflation falls but to still unacceptable levels. They also acknowledge, however, that the Fed “could blink and acquiesce” to a 3%–4% inflation rate for the time being, in which a soft landing might be possible.
“We expect a mild recession in the U.S. in 2023—mild due to the cash on corporate balance sheets, a reasonably healthy corporate sector, and a relatively strong banking system,” Doll writes.
Beyond the inflation dynamic, his firm remains concerned about potential political and economic shocks that could impact the U.S. and global economy via higher uncertainty and/or tighter financial conditions. “Like 2022, we expect 2023 to show plenty of volatility (in both directions) to keep things interesting,” he observes.
In that regard, Doll offers his 10 predictions for 2023:
- The U.S. experiences a shallow recession as real GDP is in bottom 10 of the last 50 years.
- Inflation falls substantially, but remains above the Fed’s target.
- Fed funds reach 5% and remain there for the balance of the year.
- Earnings fall short of expectations in 2023 due to costs pressures and revenue shortfalls.
- No major asset class is up or down by a double-digit percentage for only the fourth time this century.
- Energy, Consumer Staples, and Financials outperform Utilities, Technology, and Communication Services as Value beats Growth.
- The average active equity manager beats the index in 2023.
- International stocks outperform the U.S. for the second year in a row (first time since 2006-2007).
- India surpasses China as the world’s largest population and is the fastest growing large economy.
- A double-digit number of candidates announce for President.
