5 Main Stock Market Risks in 2023

•  trendspotteam

•  Dec 29 2022
 

2022 is going to end in a depressing way for stock market investors, with the S&P 500 index wiping out almost 20%.

Charles Schwab, the financial services company that manages assets worth 8 trillion dollars, identified the dangers for the markets next year, some of which also cast a shadow over the past year; And how does reopening the economy in China actually pose a threat?

The continued raising of interest rates by central banks around the world and the easing of China's corona policy are among the main events that characterized 2022, and may also affect the next year and endanger the global stock markets in 2023.

The S&P 500 index and the MSCI world index have each fallen close to 20% this year, amid events such as the Russian invasion of Ukraine, a spike in energy prices following the invasion and interest rate hikes by central banks in the world in an attempt to curb inflation that led to higher loan costs.

"History has shown us that the biggest risks in a typical year don't come from an unexpected place but often lurk in plain sight," wrote strategist Jeffrey Kleintop of Charles Swab. "The risk appears when there is a very high level of confidence among the participants in the markets regarding a specific result that does not materialize in the end."

Here are the 5 main risks expected in 2023

China's Reopening

The most populous country in the world surprised when it began to withdraw from its strict corona policy, including the cancellation of mandatory tests and isolations, after the mass protests last month. Increased spending by 1.4 billion consumers may indeed improve revenue forecasts for companies with exposure to China, but it could also lead to a return to global inflation for commodities and products. The timing is not perfect.

Increase in Mortgage Payment Defaults

Interest rates on mortgages soared around the world after the Federal Reserve Bank, European Central Bank, Bank of England and other central banks raised interest rates this year. In the US, for example, the one-year interest rate on mortgages doubled to 5.6%. Even in the coming year, households without a fixed-rate mortgage are expected to face a jump in monthly mortgage payments.

Tightening of the Central Banks

The Fed, the European Bank and the Bank of England last week cut interest rate hikes to 50 basis points each. However, the major central banks have made it clear that they are not done yet, even though they have backed off from the aggressive rate of interest rate increases. We also noted in the report that employment data in the US lags behind the economic data, and by the time the situation deteriorates enough for the Fed to decide to change policy, the global economy will almost certainly be in a deeper recession than is currently estimated. Major central banks are tightening monetary policy too much by raising interest rates too high (after leaving them too low for too long), and this poses a risk to market forecasts for a not-too-deep recession that will continue until early 2023.

The European Energy Crisis

European leaders have struggled to accumulate enough natural gas to meet their heating needs after Russia suspended natural gas shipments to the region following sanctions imposed after the invasion of Ukraine. In the meantime, reserves, conservation efforts and relatively comfortable temperatures for the beginning of winter helped lower the risk of a full-blown energy crisis, and accordingly prices in Europe fell and a recovery was recorded in the European stock markets in the fourth quarter of the year. However, the situation of European gas stocks remains vulnerable, and a cold winter around the world may lead to an increase in gas consumption and make it difficult to obtain gas imports from the US, which will cause shutdowns in the European industry and the automotive industry.

Ukraine War Spreading

Investors operate on the assumption that the war in Ukraine is calming down and that negotiations may even lead to a ceasefire. But the way to end the fighting may require Ukraine to regain Crimea, the peninsula annexed by Russia in 2014. Any move to hold territories will likely be seen as Vladimir's red line Putin, and will increase the chance of escalation on Russia's part should Ukraine invade Crimea after advancing from Harson. Russia could escalate the situation with widespread attacks on civilian infrastructure or export restrictions on Black Sea routes. But worse, Russia could use nuclear, biological, or chemical weapons to defend what it perceives as Russian territory. Russia also could attack arms shipments to Ukraine from Western countries, or bring other countries into conflict through targeted or untargeted attacks on neighboring countries.

Conclusions

There are many risks that could affect the stock market in 2023, but it's not possible to accurately predict which risks will materialize or their potential impact on the market. Some potential risks that could affect the stock market include economic downturns, political instability, natural disasters, and changes in monetary and fiscal policies. It's important for investors to carefully consider these and other potential risks when making investment decisions and to diversify their portfolio to manage risk. It's also important to consult with a financial professional for personalized advice on managing risk in your investment portfolio.

Please note that the article should not be considered as investment advice or marketing, and it does not take into account the personal data and requirements of any individual. It is not a substitute for the reader's own judgment, and it should not be considered as advice or recommendation for buying or selling any securities or financial products.

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