What Wall Street Sees In 2023

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What Wall Street Sees In 2023

by David Reavill

 

Ah, a New Year, usually the best of times on Wall Street. After all, historically, three out of every four years, the American Stock Market has just completed another up year. That’s right. Stocks appreciate nearly 75% of the time come year-end.

But not in 2022. It was one of the worst-performing years in some time. That directly trickles down to all those who labor on the Street. Instead of looking forward to a year-end bonus, often a very significant part of one’s yearly compensation, this year, many are hoping to avoid the dreaded “pink slip” as Wall Street management looks to make deep cuts in staffing.

None of this surprises Wall Street veterans; they’ve all been here before and watched the ups and downs of this very volatile business. But something that makes this year exceptional is a pall that seems to have descended over a small plot of land at the tip of Manhattan. The optimism is missing.

In the most recent bear markets, the Great Financial Crisis of 2008 and the Covid Lockdown of 2020, there was a sense that the nation would rebound quickly. And it did. There was confidence that the “powers that be” in Washington, the Fed, and Treasury would come up with a solution that would see us through the crisis and put the economy on the road to recovery.

That sense of hope for the future is missing today. In part because we’re still working through the after-effects of those recovery programs. After 2008, the Federal Reserve instituted its twin monetary policies of Quantitative Easing and Zero Interest Rates. After Covid, the Fed and Treasury continued all of those policies, combined with unprecedented money printing, called the “Stimulus.”

The result of all this financial chicanery has been an exponential increase in the country’s debt burden, combined with the most virulent inflation in 40 years. Both of which we will be dealing with for some time.

There is an increasing concern among the traders, portfolio managers, and analysts who make up the financial services industry. You can see it in their eyes. For many, it’s the hope they can make it through March, the most likely time for Layoffs on Wall Street. During this first quarter of the year, we’re likely to see some of the most extensive layoffs in recent memory.

But on Wall Street, personnel issues reflect the way the Street sees its prospects and the prospects for the country. Here is where the real genuine concern lies.

As we begin 2023, the Average Investment Bank estimates that the economy will only grow at 1/2% for the year’s first three quarters. That’s economic stall speed. Any slight hick-up would drop this economy into recession. And in fact, two or three of the Big Banks are predicting that by Q3 2023, that’s right where we’ll be, in recession.

A Recession Call is a huge deal. The first time I’ve seen a call for a recession at the beginning of a year. I’ve never seen Macro Economic Estimates so low on Wall Street. Wall Street is never this bearish, especially not at the beginning of the year.

The professionals at Broad and Wall are seeing something that you and I, the average investor, may yet observe.

We all know the obvious: runaway inflation, the disruptions to international trade, and the War in Ukraine. And, of course, the Federal Reserve, with its foot planted firmly on the monetary brakes, the current estimate is that the Fed will only stop raising interest rates once they reach 5 1/4%.

Those issues are apparent and enough to put this economy into a tailspin.

However, I’d like to propose another factor entirely out of the blue. Just the sort of thing that would drop this economy into the recession that those banks are predicting.

There are real problems in the labor sector of our economy. To see the full scope of this problem, we’ll need to connect some dots. And we’ll do that in  Part II.

Econ Briefs

For the fifth month in a row, China has reported that their Purchasing Managers Index shows a contraction in their manufacturing sector. China’s reduced manufacturing disappointed some, who hoped that China’s production levels would rebound from their recent Covid lockdown. After all, China is the number one manufacturing country globally and a precursor for the Worldwide Economy, at least in manufacturing.

Thus China joins most of Europe, Japan, and the United States in the declining production sector. Of the major economies in the world, only India, Switzerland, and Russia show an expanding manufacturing component.

Here in the US, we will see the latest numbers on Construction Spending for November. It’s expected to show yet another decline as Real Estate at all levels continues to get hammered by these higher interest rates.

There are no major earnings reports on this first Trading Day of the new year.


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GuvGeek
GuvGeek
1 month ago

Wall Street knows America is in a Depression with over a 25% loss in Buying Power in just 2 years. They just refuse to say it. It took from the crash in 1929 until Mid 1932 to do this in the Great Depression.

Anonymous
Anonymous
1 month ago

USA went from being #1 world power to #3.

John Vieira
1 month ago

Captain Brandon will soon complete the ‘scuttling’ of the ship…