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15 Experts Forecast the S&P 500's 2023 Ending Point and Offer Positioning Tips

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Strategists Share Outlook for Stock Markets in Second Half of 2023

Federal Reserve Policy Plays a Key Role

Most market strategists surveyed by CNBC Pro believe that the Federal Reserve's monetary policy will be a major factor influencing the trajectory of stock markets in the second half of 2023. The majority expect the Fed to keep interest rates higher for longer, which could create headwinds for equities. The Fed's focus on bringing inflation to target is likely to outweigh the decline in macro conditions and result in rates being held steady throughout 2024.

Bullish Views with Caution

While some strategists are optimistic about the stock market's performance for the rest of the year, their expectations are relatively modest. Binky Chadha from Deutsche Bank predicts a small increase of 2.3% in the S&P 500, citing the potential for sell-offs but not a significant correction. Ken Peng from Citi Global Wealth Investments believes that although the S&P 500 may not experience much growth, there will be broader performance across the index, suggesting a positive trend.

Risks of Narrow Market Breadth

Several strategists warn about the narrow breadth of the stock market's rally, with just a few heavyweights lifting the entire index. This exposes the market to rapid downturns if these leading stocks stumble. Savita Subramanian from Bank of America expects the S&P 500 to remain flat by the end of the year, while Andreas Bruckner foresees a decline in the pan-European Stoxx Europe 600 index.

Cautionary Views and Downside Risks

Some market strategists have a more negative outlook, mainly concerned about the potential for a misguided outlook for the U.S. economy. They believe that stocks are already priced for a soft landing, which could be disrupted if the Fed continues to hike rates or if the accumulated impact of rate increases leads to a recession. UBS predicts a 7% drop in the S&P 500 by the end of the year, while other strategists expect declines ranging from 5-10%.

Positioning for Potential Downturns

Strategists recommend various approaches to positioning portfolios in anticipation of potential downturns. Matt Rowe from Nomura Private Capital suggests reducing equity exposure and considering fixed-income assets. Wouter Sturkenboom from Northern Trust advises being underweight in equities and overweight in high-yield bonds. Sameer Samana from Wells Fargo Investment Institute recommends focusing on large-cap, higher-quality U.S. companies operating in the materials, energy, and healthcare sectors while avoiding small-caps, emerging markets, and certain sectors.

Navigating the Stock Market Outlook in 2023

The outlook for stock markets in the second half of 2023 is mixed, with market strategists offering different perspectives on the likely trajectory. The Federal Reserve's monetary policy is expected to play a key role, with most strategists anticipating higher interest rates being maintained to address inflation concerns. This could pose challenges for equities, potentially impacting the performance of stock markets.

While some strategists express cautious optimism for the stock market's performance, expectations are relatively modest. They foresee potential sell-offs but not significant corrections, indicating a conservative outlook. However, there are concerns about the narrowing breadth of the market rally, which leaves the market vulnerable to rapid downturns if leading stocks stumble. This highlights the need for careful risk management.

On the other hand, some market strategists hold more cautionary views, concerned about potential misjudgments regarding the U.S. economy. They believe that stocks may already be priced for a soft landing, which could be jeopardized if the Fed continues to hike rates or if rate increases lead to a recessionary environment. These predictions suggest potential downside risks for stock markets in the second half of 2023.

For new businesses, it is crucial to pay attention to these market dynamics. To navigate potential downturns, it is wise to consider reducing equity exposure, exploring fixed-income assets, and being cautious of sectors and emerging markets. Focusing on large-cap, higher-quality U.S. companies operating in resilient sectors like materials, energy, and healthcare can be a prudent strategy.

In conclusion, as the second half of 2023 unfolds, businesses must remain vigilant and adapt their strategies to the evolving market conditions. By staying informed and implementing prudent risk management, they can position themselves to weather potential downturns and seize opportunities for growth in the stock market.

Article First Published at: https://www.cnbc.com/2023/07/11/where-will-the-sp-500-end-2023-15-strategists-share-their-predictions.html

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