In the Federal Reserve’s quiet period before its officials meet to decide their final actions this year, Wall Street watchers are filling the void, loudly warning that next year’s outlook for the US economy and stocks is grim.
From Goldman Sachs Group Inc.’s David Solomon caution that the economy faces “bumpy times ahead,” to JPMorgan Chase & Co.’s Jamie Dimon grimmer view that this would be a “mild to hard recession,” and Morgan Stanley Wealth Management’s Lisa Shalett, who told Bloomberg Television that corporations are facing a “rude awakening” on earnings, the messages have become increasingly dire.
“We do not think the economic conditions for a sustained upturn are yet in place,” Mark Haefele, chief investment officer at UBS Global Wealth Management, wrote in a note. “Growth is slowing and central banks are still raising rates.”
Investors appear to be heeding the warnings. Following a two-month rally, the S&P 500 Index has fallen in all but one of the last eight sessions and dropped 1.4% on Tuesday. Equity strategists, historically the market’s biggest cheerleaders, are now predicting a down year in 2023. And the red flags are being waved in the wake of wage and services data that suggested inflationary forces still grip the economy.
The charts aren’t helping, either. Whenever the benchmark S&P 500 is lower by 15% or worse in a year through November, December is usually much weaker, according to BTIG’s Jonathan Krinsky. From January to November, the benchmark index had seen a 19% drawdown, with the gauge giving up its ground to close back below its 200-day moving average Monday.
