This text is taken from the Courrier de l’économie of January 9, 2023. To subscribe, click here.
The year 2022 was the worst for the S&P 500 index since the 2008 financial crisis, registering a decline of almost 20% from the beginning to the end of the year. So, what can we expect in the next year on the stock markets?
“Wondering what the year will look like on the stock market is like looking at the weather forecast two weeks in advance. We know that there is a very good chance that it will fluctuate in the meantime, but we are watching anyway! summarizes Jean-Paul Giacometti, Vice-President and Portfolio Manager at Claret Gestion de placements.
“Thousands of analysts and economists flood us with forecasts. It’s a bit like the lottery: we know that someone is going to win, but we don’t know who, before the draw,” says Mr. Giacometti.
Nevertheless, even without a crystal ball to predict the weather, the sky is already cloudy: inflation remains very high, and a recession could possibly hit the economy this year.
Ruben Antoine, too, does not want to venture to make projections on how this will translate into the health of companies and their performance on the stock market in the coming months.
But the portfolio manager at Tulett, Matthews & Associates reminds that inflation is a “double-edged sword” for companies.
“On the one hand, inflation drives up business costs. And on the other hand, the rise in interest rates to offset this inflation also means that companies’ debt to finance their activities is more expensive for them,” explains Mr. Antoine.
“If interest rates continue to climb, growth companies could still have trouble, as we have seen in the last year,” said the portfolio manager.
Profit Season
The upcoming earnings season—the period when public companies announce their quarterly financial results, in this case for the 4e quarter of 2022 — will allow us to take a look at the situation.
A few large public companies — including four major US banks Wells Fargo, JPMorgan, Bank of America and Citigroup, as well as the airline Delta Airlines — got the ball rolling on Friday. Others are preparing to do so in the days and weeks to come. Among others, Morgan Stanley, Goldman Sachs and United Airlines will announce theirs on Tuesday. P&G and Netflix will do so on Thursday.
But already, a majority of investors are preparing for a lackluster season and for the S&P 500’s slide of recent months to continue, according to an MLIV Pulse survey conducted by Bloomberg.
Certain signals also show that companies are experiencing less good times than during the pandemic.
Meta, the parent company of Facebook, has announced that it is laying off 11,000 employees (13% of its workforce), Amazon is letting 18,000 (1.2%), Salesforce around 8,000 (10%), DoorDash around 1250 (6%), Snapchat nearly 1200 (20%)… Goldman Sachs, meanwhile, would let 3200 go according to the New York Timesthe equivalent of 6% of its workforce, “its largest series of layoffs since the financial crisis [de 2008] “.
Still, for investors, the best advice is to stay the course on a medium or even long-term investment strategy and to diversify their portfolio, reiterate Ruben Antoine and Jean-Paul Giacometti.
“Investment in the stock market must have a horizon of at least 5 to 10 years,” says Mr. Giacometti. Finding well-priced companies that will survive a recession is much more important than whether we have a few months of market fluctuations left or not. »
And to keep in mind, even if the past is not a guarantee of the future: admittedly, the S&P had a difficult year in 2022, but it is still up by around 40% over 5 years and nearly 170% over 10 years.