With the benchmark equities index recently falling to around 20% below parity, investors have begun earnestly researching topics related to a stock market outlook for 2023. To be sure, publicly broadcasting predictions can either make one look like a genius or a complete clown. In this business, I’ve had experiences with both. Nevertheless, I’m going to try to bring some reasonable forecasts to the table.
If a central theme exists to any stock market outlook for 2023, it could be a focus on transitions. Early in the coronavirus pandemic, many policymakers responded to the immediate needs of their constituents. Unsurprisingly, these actions sparked massive changes in the stock market. However, with the Covid-19 crisis largely fading, the government must now prioritize normalization.
In turn, we could suffer some growing pains as we transition from one paradigm to another. And this too will cause undulations (including occasional sharp gyrations) to the equities sector. To prep for this possible coming circumstance, below is my stock market outlook for 2023.
Housing Market Declines
Although a contentious issue, in terms of a stock market outlook for 2023, I see major problems with real estate. It really comes down to the Federal Reserve’s commitment to tackling inflation through raising the benchmark interest rate. Throughout this year, the central bank consistently and aggressively hiked rates. Further, the latest jobs report suggests that policymakers will be keen on killing inflation next year.
Unfortunately for the Fed, the hotter-than-expected November employment numbers indicated that its measures failed to resonate. Therefore, to get a true hold on rising prices, the gloves must come off. Frankly, that’s a scary thought for folks that need to borrow money. And it could be an uppercut blow to the housing market.
Without getting into complicated narratives, I just go with this one truism: you can have higher rates or higher prices but you can’t have both at the same time. To be fair, many if not most homeowners currently sit on massive equity. Still, layoffs at scale – stemming from higher rates – could force more home sales at discounted prices. It’s just my opinion but I would stay away from names like Redfin (NASDAQ:RDFN) which have struggled badly in 2022.
If any obvious benefit materialized from the awful Covid-19 crisis, it’s that the pandemic forced Americans to rethink work. Once a privilege – which occasionally led to snide bickering among the less privileged – working from home (WFH) enabled corporate America to stay afloat during the catastrophe. Of course, with the genie being let out of the bottle, very few wanted to return to business as usual.
Unfortunately for America’s white-collar employees, WFH may come to an end next year. As I’ve cited many times, Resume Builder reports that “90% of companies will require employees to return to office in 2023.” Not only that, “21% of companies will fire workers who do not return to the office.”
While revolting against your boss sounds like a morally righteous idea, here’s a tip: you don’t want to be the guy (or gal) to get let go during a recession. And you especially don’t want to be let go for stupid reasons like insubordination for refusing to do, you know, your job.
Therefore, my stock market outlook for 2023 involves a cynically bullish take on companies like Robert Half International (NYSE:RHI). Invariably, some folks will learn the hard way. And they’ll be scrambling for employment.
Gig Economy Rises
Interestingly, the above stock market outlook for 2023 enjoys a counterpart. Recently, I came across a BBC News article that detailed the story of one worker who quit because of a return-to-the-office mandate. Let me just stress again how utterly stupid such a move is if you don’t have an alternative situation lined up.
Forget the political correctness, forget about a stock market outlook for 2023. The best thing you can do for yourself next year is to not be stupid.
Anyways, the possibly next best thing you can do for yourself in 2023 is to consider companies that may rise on the burgeoning gig economy. Let’s think about it this way. Working from home has been so important for employees that they’ll risk nuking their careers (and reputations) for the privilege. A less-painful method to making this lifestyle permanent is to become independent contractors (i.e. gig workers).
Globally, the gig economy featured a valuation of $355 billion in 2021. By 2027, experts project that this segment will reach a value of $873 billion. Therefore, one should target companies like PayPal (NASDAQ:PYPL), which offer freelancers digital payment processing and business management services.
Defense Stays Relevant
Given the controversial nature of the publicly traded defense segment, it doesn’t represent the most popular avenue for profits. While I wouldn’t say that contractors in this space carry nearly the same toxicity as privately owned prisons, for many investors, the sector carries unwanted juju. I get it. At the same time, as a viable stock market outlook for 2023, it’s unignorable.
Obviously, the most pressing concern for the entire planet centers on Russia’s invasion of Ukraine. According to the latest information from The New York Times, peace talks remain a far-off proposition. And any kind of negotiations that involve ceding of land will likely be a non-starter. Imagine if someone burgled your home and offered part of your belongings back in exchange for you not calling the police. Again, it’s a non-starter.
Further, U.S. support of Ukraine isn’t just a matter of Ukrainian independence, as beautiful of a story that it is. Rather, Washington must keep Moscow in check. Otherwise, it sends a signal to other aggressive or imperialistic nations – read China – that it’s okay to invade sovereign countries. Therefore, whether we like it or not, companies like Lockheed Martin (NYSE:LMT) will be extraordinarily relevant as a stock market outlook for 2023.
Personal Security Draws Attention
Staying in line with a controversial segment, another stock market outlook for 2023 centers on personal security. During the height of the Covid-19 crisis, another crisis materialized, that of social inequality. Frankly, it was difficult to ignore that the rich got richer during the pandemic. Indeed, government data on the wealth gap demonstrates that the ultra-affluent won big.
Invariably, the combustible mix of a once-in-a-blue-moon pandemic and severe wealth disparities sparked protests across the nation. Sadly, many innocent people got caught in the crossfires of this smoldering social conflict. Frankly, we’re still healing from the opened wounds, putting a focus on personal safety and protection.
Early in 2022, The Wall Street Journal noted that law enforcement agencies lost many police officers. As well, they struggled to replace them. Increasingly, the occupation has become a thankless job while remaining incredibly dangerous, if not more so. Put another way, regular folks increasingly must take care of themselves. Personally, my stock market outlook for 2023 on this subject matter would involve considering firms like Alarm.com (NASDAQ:ALRM). Specializing in home automation and monitoring services, ALRM could be surprisingly buoyant.
Focus on the Family
With rising interest rates next year seemingly a sure thing based on prior Fed comments, the insurance sector may play a significant role regarding a stock market outlook for 2023. Based on historical trends, insurance stocks share a direct relationship with benchmark rates. In other words, as rates rise, so too does the valuation of publicly traded insurance providers.
Of course, insurance represents a varied field. In particular, though, the life insurance segment may enjoy a demand influx. Fundamentally, the Covid-19 crisis forced people to recognize their own mortality. In addition, the pandemic popped the illusory bubble that people living in developed nations tend to operate under. Thanks to the interconnected world, a health conflagration in one part of the plant can contaminate others alarmingly quickly.
Essentially, anything can happen to anyone at any time. A U.S. passport will not mitigate certain vulnerabilities. Many more people realize this crude reality following the pandemic. Thus, for the sake of protecting loved ones, life insurance providers may rise. And that may bode well for leaders in the space like MetLife (NYSE:MET). Sure enough, MET is up around 14% for the year.
Big Tech Recovers
Not surprisingly, the broader technology sector suffered disproportionately from the myriad headwinds of 2022. Regarding the sector, the global supply chain disruption negatively impacted the flow of semiconductors, leading to chaos in the early phases of the Covid-19 crisis. However, just as companies started to improve their inventory levels, demand erosion then led to supply imbalance concerns.
Further, the Fed has been no friend to tech-centric names. Generally speaking, enterprises in the innovation space focus on growth rather than earnings. This framework ran beautifully during a dovish monetary environment. However, under an increasingly tight dovish one, the rise in borrowing costs disincentivizes expansionary endeavors. Certainly, several startups in the field may suffer continued declines.
Nevertheless, big tech – I’m thinking presently embattled names like Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) and Meta Platforms (NASDAQ:META) – may be due for a big comeback. True, many of these entities suffer from a credibility crisis. Still, as a stock market outlook for 2023, the reality is that their underlying platforms offer extraordinary relevancies.
For instance, should people lose their jobs, they’re going to turn to Google. Or they may try to network on Facebook. In other words, some services are too vital to ignore.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.