US stocks continued to move south last week and the Nasdaq index is now getting closer to its 2022 lows. Here are the key economic indicators that markets will watch this week as hopes of a Santa Claus rally fade.
Historical data shows that more often than not, US stocks tend to see a year-end spike, famously known as the Santa Claus rally. However, 2022 was not like other years. Markets came into the year after three years of strong double-digit returns. Analysts were anyways apprehensive about the valuations heading into 2022.
The Fed’s massive rate hikes, a total of 4.25% to be precise, only dampened the sentiments. Despite the rate hikes, US inflation is still above 7% and the Fed has predicted another 100-basis point of rate hikes next year. The hopes of a Santa Claus rally all but died after the Fed’s December meeting where the US central bank raised rates by 75 basis points.
US economic indicators have deteriorated, signaling a slowing economy. Multiple business leaders, economists, and fund managers believe that a US recession is imminent in 2023.
Fed’s rate hikes, recession fears, and the fallout of FTX bankruptcy have also taken a toll on digital assets. We have a guide on whether crypto is recession-proof.
Key Economic Indicators to Watch Next Week
Next week would be holiday-shortened and trading volumes might be tepid. There are no notable earnings scheduled for the week but we still have some economic indicators that investors would watch.
On Tuesday, we’ll get the home price index. The US housing market has sagged amid rising interest rates. Investors would closely follow these indicators to gauge the health of the US housing sector.
Recent housing indicators have shown that the once-red-hot sector is rapidly slowing down amid rising interest rates. Many might also be postponing their home-buying decision amid recession fears.
While recession impacts most sectors of the economy, some of the investments are largely recession-proof.
On Thursday we’ll also get the weekly jobless claims data. The US job market is still strong despite layoffs at several large companies. The Fed however expects the US unemployment rate to rise as the economy slows.
As Santa Claus Rally Hopes Fade, Investors Brace for a Tough 2023
While the possibility of a Santa Claus rally in 2022 looks dim, analysts are mixed on the outlook for US stocks in 2023. Fundstrat is bullish on US stock markets in 2023 and its year-end S&P 500 target of 4,750 is currently the most bullish on Wall Street. Fundstart’s Tom Lee is betting on a soft landing for the US economy in 2023.
Wharton professor Jeremy Siegel predicts that US stocks would rise 15% next year. Deutsche Bank, Oppenheimer, and BMO are also bullish on US stocks and see the S&P 500 closing at 4,500, 4,400, and 4,300 respectively next year.
Mike Wilson of Morgan Stanley expects the S&P 500 to fall towards 3,000 in the first four months of 2023 but then predicts a rally. Wilson’s year-end 2023 target for the S&P 500 is 3,900 and he advises buying the dip. You can also buy stocks with a credit card.
In its 2023 stock market outlook, JPMorgan said that while US stocks would retest 2022 lows in the first half of 2023, they would recover in the back half on a possible Fed pivot.
Fed chair Jerome Powell has meanwhile dashed hopes of a pivot to rate cuts on more than one occasion, warning against premature policy reversal.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.