Stock market investors have had a good run in 2023 following last year’s massive selloff. The S&P 500 has climbed about 14% this year — much improved from 2022, when the index lost nearly one-fifth of its value. Although stocks have gone mostly sideways since late July, things could improve in late 2023 with a year-end rally.
In a note published earlier this week, Morgan Stanley’s Mike Wilson left open the possibility of a rally late in the 2023 fourth quarter, but only if everything breaks the right way.
Before that, however, there could be some pain. As Fortune reported, Wilson still believes the overall stock market will be lower by the end of the year than it is right now. His prediction is that stocks will lose 10% during the remainder of 2023.
“The average stock has already broken down technically,” Wilson wrote. “The signals are weaker and suggest key tactical support is vulnerable […]The breakdown in various breadth measures, cautious factor leadership, the recent decline in earnings revisions and fading consumer confidence reduce the odds of a fourth-quarter rally.”
At the same time, he conceded that a year-end rally could happen because of the confidence many investors still have in the stock market.
“Many are still leaning more long than they would like to reduce the probability of missing out in a year in which narrow mega-cap strength has driven benchmarks,” Wilson wrote.
If current stock market prices remain resilient, it’s “more likely than not” that stocks will rally late in the year, he added.
Wilson’s uncertainty is shared by many others due to the stock market’s recent volatility. A blog on the US Bank Wealth Management site cited “mixed signals about the strength of the economy, uncertainties about future monetary policy actions by the Federal Reserve, and the potential for rising geopolitical tensions.”
It all adds up to a cautious outlook for the rest of the year.
“We may be out of the bear market environment, but it isn’t clear yet that a new bull market has emerged,” said Rob Haworth, senior investment strategy director at U.S. Bank Wealth Management.
Even so, there are opportunities for “courageous investors” to carve out year-end gains by picking individual stocks, according to a report from Investor’s Business Daily. It cited a “whopping” 48% gain earlier this year among top growth stocks, mainly in the tech sector.
Investors are advised to keep a close watch on the S&P 500, which has spent the last several months hovering at around 4,300, with several spikes and dips along the way. If the move past 4,300 is sustained, IBD said investors who “either have a fear of missing out or close out short positions could help gains accelerate.”
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