A recession in 2023 will likely be mild, but investors need to brace for volatility in the first half of the year as the Fed winds down its rate-hike cycle, strategist says
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- A recession in 2023 could be mild, but investors should brace for volatility in the first half of the year.
- CFRA chief investment strategist Sam Stovall says markets will recover in the second half of 2023.
- He expects the Federal Reserve to conclude tightening and pause further rate hikes by the third quarter of year.
Any recession the US faces in 2023 is likely to be mild, but investors should nonetheless brace for volatility in the first half of the year, according to CFRA chief investment strategist Sam Stovall.
He also wrote in a client note on Monday that the Federal Reserve could slow down its pace of rate hikes in the first six months of 2023, then move to pause tightening measures by the third quarter.
"We expect a mild recession, based primarily on the strength of employment," Stovall wrote. "We see the market recovering in the second half as we project the Fed to finish raising rates by late Q1 / early Q2, and pausing through Q3 2023."
The consensus economist forecast currently calls for a 50-basis-point rate hike increase at the next FOMC meeting on Wednesday, which comes a day after a crucial November inflation reading.
Stovall added that he expects the formerly dominant consumer discretionary and technology sectors — which have felt the brunt of a tough stock market in 2022 — to regain their footing by the end of 2023. He sees this coming at the expense of more defensive groups like consumer staples and utilities.
Further, Stovall called for the continued outperformance of the energy sector amid the mild recession informing his overall forecast.