US equities: market outlook for 2023.


■   Assume share price softness in the first half of next year due to the risk of downward revisions in corporate earnings.

■ Expectations of monetary easing to boost share prices in the second half of next year.

The S&P 500 has been on the upswing this year despite three upswings, and is down 19.2% since the start of the year as of 16 December. The unusually rapid monetary tightening by the US Federal Reserve (FRB) was the main reason for the decline in the expected price-to-earnings ratio (PER).

The US stock market is expected to be soft in the first half of 2023, with a recovery in the second half. The S&P 500's forecast EPS growth rate for 2023 has been slashed from around 10% at the beginning of this year to around 4% at present. The S&P 500's EPS growth forecast for 2023 has been cut from around 10% at the beginning of this year to around 4% at present, and is considered to have factored in a commensurate deterioration in the economy. However, should the economy enter a recessionary phase, the growth rate could rapidly fall into negative territory. In the first half of next year, the S&P 500 is likely to fall below 3,600 points again, as investors are wary of a downturn in share prices due to the deteriorating corporate earnings outlook.

Meanwhile, monetary policy is also expected to change phase. Fed Chairman Jerome Powell has identified the monetary tightening programme as consisting of three pillars: the pace of rate hikes, the level of the terminal rate and the period of unchanged policy rates after the end of the rate hikes. The market expects the rate hike phase to end in the first half of next year and the policy rate to move to a period of unchanged policy rates. If this happens, we are likely to see scattered 'financial market' stock market rallies due to higher expected price-to-earnings ratios (PERs). We have set our forecast for the S&P 500 at 4,000 points at the end of next year, as the risk of a downward revision to forecast EPS is factored in over the second half of next year, and expectations of monetary easing will push share prices higher.