According to statistics, two out of three stock years end with a profit. In this respect, there is actually a lot to suggest that 2023 will be a good year, after a loss of almost 20 percent worldwide for 2022.
The promising months of October to December, which prevented an even worse annual balance with a gain of ten percent, are a good start – but also a heavy burden. Since the fall, the stock markets have switched to an aggressively offensive mode.
Instead, the majority of investors are rewarding the company’s strong earnings situation. In 2022, these made profits that were almost as high as in the record profit year 2021, when there was no war and rising prices had made business difficult.
But the high corporate profits in 2022 are in the past, the future is traded on the stock exchange. It seems unlikely that there will be enough here this year for even more and that the stock markets will be able to build on the record highs they reached exactly one year ago. Three major risks weigh on prices, one opportunity inspires them.
Inflation puts pressure on companies
Risk one, the high inflation: Almost ten percent price increase, as we are currently experiencing in Europe and America, is the highest inflation since the oil price crisis in the 1970s. So far, many companies have managed to pass on rising prices for energy, intermediate products and services, so that sales and profits have often increased even more than in pre-inflationary times.
But to conclude from this that this will also happen in 2023 would be naïve. Tougher competition, combined with greater price awareness on the part of customers – that is, consumers and other companies – is likely to make it increasingly difficult to pass on rising prices successfully, as has been the case up to now.
The fact that this was achieved in 2022 is mainly due to catch-up effects caused by Corona and global supply chain difficulties. Both made it easy to demand higher prices from customers.
But in a weakening economy, more companies and consumers will soon be forced to compare prices more closely and, if in doubt, to order less because inflation will melt away too many reserves.
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Risk two, rising interest rates: Anyone who had speculated that the central banks would let the turnaround in interest rates come to an end in 2023 was taught a lesson in December. Fighting inflation remains the focus, which is why interest rates will continue to rise in 2023. At best, the pace of increases will slow down.
In 2023, central banks will focus on combating inflation.
(Photo: dpa)
Rising interest rates make new loans more expensive, increase the interest burden and are therefore at the expense of profits, future investments and consumption. All of this has a negative impact on the economy or even stalls it.
Central banks usually lower interest rates when the economy gets into difficulties in order to stimulate the economy with cheaper money. However, that will not be the case in 2023, on the contrary: the central banks have repeatedly communicated that combating inflation is the priority, even if this triggers a recession.
Rising interest rates are always accompanied by higher price fluctuations. There is a clear pattern: the longer and more strongly interest rates rise, the greater the pressure on stocks.
Initially, and this is also typical, equities are able to escape rising interest rates because there is still enough demand to drive profits. But the more interest rates rise, the more pressure the prices come under because rising interest rates reduce company earnings and weaken the economy. This effect will become apparent in 2023; if not in the first half of the year, then at the latest in the second half.
Hope for better exports
Risk three, the war: It is difficult to venture a forecast of how the Russian war of aggression will affect the stock markets. One thing seems certain: an end to the war would boost share prices; but is not in sight. Conversely, an escalation of the war, including a confrontation between the two nuclear powers Russia and the USA, would have the potential to put even more pressure on the stock markets than in 2022.
All in all, there is much to be said for a difficult year for the stock markets. The remaining chance lies in the fact that companies should continue to be able to successfully sell their products and services, perhaps even better than in 2022.
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This is supported by the fact that China, a large country, is returning to the global economic stage after the restrictive zero-Covid policy was abruptly relaxed there. Above all, export-oriented companies with a high proportion of China will benefit from this.
Germany and the Dax have many such corporations. Car manufacturers generate around a third of their sales in China, Volkswagen even 40 percent. This is probably one of the greatest opportunities for the stock market year 2023.
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