- Investors are becoming more cautious about what the end of 2023 will bring for stocks and the US economy.
- Wall Street banks, including JPMorgan and Bank of America Merrill Lynch, are becoming more defensive in their investment approach.
- Here’s what six top voices say about US stocks as 2023 heads into its final quarter.
As 2023 approaches its final quarter, there is a growing sense of caution regarding the economy in the US stock market – and that is fueling a more defensive approach among investors.
It’s a change in mood from the first half, when investors lauded the rise of artificial intelligence — and what the groundbreaking technology could mean for productivity and corporate profits.
The S&P 500 stock index is on track for its first two-month decline in a year, with investors worried that the combination of higher interest rates, declining household savings and rising consumer debt could spell bad news for stocks and the broader economy.
Those adopting a more cautious investment approach include Wall Street banks such as JPMorgan and Bank of America. Experts like John Huseman, the notorious market bear who predicted the crashes of 2000 and 2008, also recently warned of further pain for stocks and urged them to “gird up their loins.”
Here is a selection of the latest market commentary from six top voices who have a relatively pared-down outlook.
JP Morgan
- “US earnings are shrinking, and given the chronic business cycle with very restrictive monetary policy, rising costs of capital, the end of very easy fiscal policy, reduced consumer savings and household liquidity, and rising risk appetite, this is common for the next year. “Consensus expectations appear to be too optimistic. Recession,” strategists at the largest U.S. bank wrote in a recent research note.
- “Thus, we remain defensive with UW (underweight) in equities and credit versus OW (overweight) in cash and commodities in our model portfolio,” he said.
Bank of America Merrill Lynch
- “Recently investors have been reacting positively to data that suggests the economy is weakening. At the heart of this “bad news is good news” dynamic is the belief that a softening of the economy will lead to a reduction in inflation, which can be easily achieved by central This will be met by bank policy and low interest rates. In our view, this trend will not last forever,” the bank’s strategists said in a note seen by Insider.
- “We are looking at a number of scenarios that could develop over the next several months that could change the way economic data are interpreted, potentially leading to increased market volatility throughout the year,” he said.
- “Our base case is that the market environment will remain volatile for the remainder of the year. Against this backdrop, from an investment perspective, we favor a disciplined approach that emphasizes diversification across asset classes,” Strategists wrote.
John Husman, Chairman of Husman Investment Trust
- “If the recession were to start in the fourth quarter, the time to tighten the belts would be now. Not measurable in real time, but the worst equity market results start ~2 months before the recession and last until ~4 months before the recovery, ” Husman said. A recent post on X.
Ken Griffin, Citadel CEO
- “I’m a little concerned that this rally could continue,” the billionaire hedge-fund manager told CNBC’s “Squawk on the Street” on Thursday.
- “Obviously one of the big drivers of the rally has been… just the frenzy over generative AI, which has driven a lot of big tech stocks. While I believe this rally has legs, I’m a little concerned that we’re in “Seventh or eighth innings of this rally,” he said.
Mike Wilson, Morgan Stanley’s head of equities
- “Today’s S&P 500 risk/reward is one of the worst I’ve seen, combined with the valuations we have in front of us today,” Wilson said during a recent Rosenberg Research webcast.
- “Cracks are forming,” he said. “They’re everywhere, which is why people are accumulating handfuls of stock,” he said.
Jeremy Grantham, experienced investor
- “AI has caused massive declines in a dozen giant US stocks and it has certainly created a perception that the game is over,” Grantham said during an investor event hosted by Livewire Markets in Sydney this week.
- “The problem is that prices are incredibly high and basically the economy is starting to unravel,” said the co-founder of asset manager GMO. “So it’s a head fake, but it’s a fake head to a certain extent.”
Source: markets.businessinsider.com
