Investors aren’t feeling bullish on stock market performance in 2023, especially after a dismal yearly return in 2022. More than half of those surveyed by Deutsche Bank on their expectations for the coming year said they expect a zero or negative return in the S & P 500 . Nearly 40% said they think the S & P 500 will slip 10% or more, and nearly 20% expect the index to end the year flat or down 5%. That’s quite a difference from how investors felt going into 2022. “When we asked the same question last year, just 19% expected a negative return in 2022, and only 3% thought the return would be less than — 15%,” said Jim Reid, managing director of head of global fundamental credit strategy at Deutsche Bank in an email. “As it stands the index is down 17.5% this morning on a YTD basis, so hats off to that small minority who guessed correctly,” he added. Back to back negative years? Another negative annual return on the S & P 500 would mark a milestone for stocks not seen in roughly two decades. “If that proves accurate, then it would also be the first time since 2002 that we’ve seen the S & P 500 record back-to-back annual declines,” said Reid. “You had three successive declines then and the only other back-to-back decline in the last 50 years occurred in 1973-74 — a period with parallels to today.” Of course, some of the expectations for negative returns in the coming year could potentially be a case of recency bias, Reid said. After the rough performance of 2022, investors aren’t expecting things to get much better. On the flip side, the sentiment could be a “rational response given the consensus view is expecting a US recession next year and another 100bps of rate hikes from the Fed,” Reid wrote, adding that he thinks this is what is coloring investor outlooks. Traders will get more information next week, at the Federal Reserve’s December meeting. On Wednesday, the central bank is expected to deliver a 0.5 percentage point interest rate hike — the last of the year — in an effort to tame inflation.
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