Stock Market Outlook 2023: Recession or Massive Bull Rally?

Stock market outlook for 2023: Recession or Bull Market?

Stocks

February 1, 2023

Being that we’re about to hear from $AAPL, $MSFT, $AMZN, and other tech stalwarts soon concerning their earnings and outlook for the coming year, I’m going to answer the pressing question I’ve been constantly asked the past few months, “What’s your stock market outlook for 2023?”

First things first: the “R-word”

Recession.

inflation

There. I said it.

I know some people doing an ostrich imitation and denying it’s even a possibility. I believe a recession is possible. But is it probable? I’m going to stick with possible but not probable.

Though we’ve been through seven rate hikes in 2022 and just absorbed our first one of 2023, the inflation rate slowed further in December for the sixth month in a row. I expect more of the same for January.

Is the 25 basis point increase the Fed announced today going to send the economy and the stock market into a recession? I don’t think so.

Equity markets rallying because Powell is acknowledging that disinflationary process has begun and that “goods inflation is coming down fast.” Powell also clarified that ongoing increases means a “couple more increases” – so two.

— Gary Black (@garyblack00) February 1, 2023

The economy has never experienced the flurry of rate increases that hit it in 2022, and it’s still chugging down the track. I don’t think another quarter-percent increase will be the Jenga block that causes the economy to come crashing down.

I like what David Keller, chief market strategist at StockCharts.com, said: “Don’t fight the Fed’ will continue to be good advice in 2023, with the first half of the year likely weaker based on the Fed’s ongoing efforts to fight inflation.”

Fed Chairman Powell’s comments today positively impacted the market as he indicated that based on statistics, future rate increases could remain at 25 basis points. He would not commit to pausing increases, which will likely lead to a choppy market until the Fed hits the pause button.

stock market outlook 2023

Stock market outlook in 2023

Let me sum it up this way:

“Mostly cloudy throughout the day with intermittent sunshine beginning mid-afternoon.”

Notice I said “mostly” cloudy and didn’t use the word “gloomy.”

I used the word “mostly” because there will be some stocks that perform well in 2023, as well as some that continue to languish.

Last year we saw growth stocks, tech stocks, and crypto take a pounding. I expect more of the same until a recovery begins.

Similarly, I suspect retail and leisure stocks are in for a rough ride during the first half of 2023. For instance, Nordstrom ($JWN) is down 20.43% in the past six months and, along with Kohls, could see closures in 2023.

So, what looks good this year?

There are no sure bets right now, but my stock market outlook for 2023 looks favorable for several sectors.

Energy Stocks

I see no reason that energy stocks will not consistently be in positive territory this year.

Exxon Mobile ($XOM) reported record earnings on Jan. 31 as profits continue to roll in for the oil companies. Its stock is up almost 22% in the past six months.

Constellation Energy ($CEG) has also outperformed the market by a wide margin in the past year, up 69%.

And Occidental Petroleum ($OXY) has been a nice gainer, up over 61% in the past 12 months.

People are driving and flying in record numbers and are expected to continue packing their suitcases in 2023.

Technology Stocks

You may be shaking your head on this one if you took a beating in this sector last year, but there are still some good plays here.

One I like in particular is Microsoft ($MSFT). It announced five days ago that it had invested $10 billion investment into ChatGPT, which is a hot topic everywhere you look online. Microsoft is betting heavily on AI and is changing how it competes with Google ($GOOGL), Apple ($AAPL), and other tech giants.

Big D Trading readers also know I’m consistently bullish on Apple, and as Tom Petty sang, “I won’t back down.” The tech giant, representing more than 6.7% of the S&P 500 by weight, is set to roll out a foldable iPad this year. I’m betting that’s not the only new arrow in their quiver.

As for Elon Musk’s Tesla ($TSLA), there’s enough positive catalysts with their recent price cuts on several models (3, Y) to suggest their could be an uptick in 2023 demand. There’s also the teased released of their pickup-truck model, the Cybertruck, slated to launch late this year. Though, it must be said, Tesla might take some time to recover from their drastic 40% decline since late September 2022.

stock trading

Small Caps

There’s a bumper crop of small caps that had good runs in 2022, which I believe are poised to continue growing in 2023.

Cal-Maine Foods ($CALM) is up over 46% in the past year and is benefitting from inflation and the shortage of eggs due to avian flu. The price of a dozen eggs is about double its five-year average.

Encore Wire ($WIRE) may also have another good year. It’s off to a fast start in 2023 (+21.86%), has gained over 42% in the past 12 months, and if you bought it during the March 2020 correction, your profit is over 250% in the past 34 months.

The iShares Russell 2000 ($IWM) ETF is worth a hard look if you prefer ETFs. It’s in positive territory over the past six months and is off to a strong start (+10.03%) in 2023. Some of its top holdings include Murphy Oil ($MUR), Commercial Metals ($CMC), and Texas Roadhouse ($TXRH).

How should you navigate a stock market crash in 2023?

Proceed with caution – but proceed.

Now is a good time to look past the doom and gloom we hear daily and realize that many of our favorites are selling at the best bargain prices in years. If you’re thinking three to five years out, this is a good time to be a buyer.

In Big D trading, I talk about dollar-cost averaging, which is adding money to the market at regular intervals. This helps you avoid putting all your chips on the table at the wrong time and will net you a lower cost-per-share over time.

By investing regularly, one month at a time, you’ll avoid buying too high and will be adding to your investments when they’re lower in price, setting yourself up for better returns in the coming years.

Above all, when it comes to the stock market outlook in 2023 – stay invested. Getting out now and trying to time the market and jump back in when it starts its eventual ascent, which often happens with a big bang, will cost you dearly. Timing the market is a fool’s gambit.

Be on the train, not the platform, when it leaves the station.