Kavan Choksi Briefly Discusses the Stock Market Outlook for 2023

Stocks are likely to have a strong first half of the 2023, while the risk of recession might loom in the second half. Investors need to keep an eye out for opportunities in value stocks and Asia ex-Japan. As per Kavan Choksi, a lot of investors are still struggling with the bear market of 2022 and think that corporate earnings may collapse early in 2023, bringing the stock market down with it. While these concerns are not baseless, there are reasons to be optimistic about the market as well.

Kavan Choksi underlines the stock market outlook for 2023

Major economic indicators like employment and GDP show that the United States economy is providing to be resilient enough and is unlikely to witness a first-quarter collapse in earnings in 2023. The outperformance of the materials, industrials and financials in the country also indicates to the same, as the price of such cynical stocks typically goes down before the economy falters. A strong first quarter is definitely possible with continuing improvements in inflation mixed in.

Earnings, however, may drip down gradually throughout 2023, causing frustration for market bears. Interest rates on long-term bonds have fallen lower in comparison to that of short-term bonds, thereby creating an inverted yield curve that typically portends an upcoming economic slowdown. It is possible that a weaker second half may follow a strong first half in 2023.

Value stocks began to outperform the market in the fourth quarter of 2022. It, in fact, outperformed financials, materials, industrials and energy led sectors as well. The market might be in the early stages of value outperforming at the moment, however, a lot of investors do not seem to recognize it as the memory of easy money in growth stocks seem to be too tantalizing. 

As the dotcom bubble burst in 2000, technology fell about 60% in the first year, and many investors tried to purchase in the dip. However, in the second year, tech was down another 22%. Meanwhile, materials, financials and industrial stocks were all positive, but investors missed out the opportunity as they tried to buy what worked in the last bull market. There has been a remarkable consistency with that behavior in 2023. A lot of investors have gone back to tech stocks, but are not showing an adequate amount of interest in value stocks.

According to Kavan Choksi, mentions subsequent to the peak of the United States dollar in the September of 2022, non-U.S. markets finally started to outperform the U.S. Asia ex-Japan has led since the end of October in comparison to Japan and Europe. As a result, Asia ex-Japan does present a pretty interesting equity area for 2023, China in particular. The People’s Bank of China is among the only major central banks not to tighten its rates. Moreover, the Communist party has pivoted from its previous zero-COVID policy, which is likely to result in improved economic activity. Global growth is accelerating at the moment. Therefore, U.S. bond market yields are not as attractive as before to the rest of the world.