World Stock Index 2023 - Reviewing the Current Landscape

World Stock Index 2023 - Reviewing the Current Landscape

The world's investors are facing conditions few among them have ever encountered before. In addition to the usual list of worries, there is a pronounced pause in global growth, rising inflation and a tightening in financial conditions.

The global economy is slowing down, detracting from corporate earnings and potentially pushing down stock prices. Yet our cycle, valuation and sentiment process points to a more optimistic outlook for stocks than most observers are currently assuming.
Global Growth

A stock index is a measure of the performance of a securities market. It allows to assess the dynamics of the market and its reaction to various factors, such as macroeconomic events, mergers and acquisitions or stock splits. It can also be used to compare the dynamics of different markets or industries, which makes it a useful tool for investors.

The first half of 2023 brought more turmoil than usual to global equity markets, but there is reason for hope in the second part of the year. The risk of a recession has been averted thanks to an agreement on the debt ceiling, central banks seem likely to pause on interest rates, and geopolitical tensions are cooling.

However, there are still long and variable lags to overcome in global growth, and inflation is unlikely to retreat below comfort levels. This may lead to further monetary tightening and a possible synchronized global recession, possibly in 2024.

It's worth remembering that, over the past 50 years, stocks have gained an average of 8.8% in the second half of the year following a negative first half. But, as the chart below shows, there have been many more declines than rises in this period.

The global economic recovery may take longer than usual due to a range of factors, including a sluggish Chinese economy, trade frictions and fading effects from the Covid-19 pandemic. This could make it difficult to meet rising profit expectations in the coming quarters.

For example, in the US, earnings growth is expected to slow from 2.5% this year to 1.5% next year as economic expansion cools and interest rate hikes eat into profits. In China, app vay tiền uy tín consumer spending and investment are both weakening, and the impact of the trade war with the US is yet to be seen.

Despite these challenges, the market has recovered from its recent lows and could continue to advance in the second half of 2023. But it will be important to differentiate between leaders and laggards, as underperformers tend to have lower pricing power, higher interest rate sensitivity and more cyclical business models.
Global Inflation

Global inflation is dipping but remains high by historical standards. A combination of factors including snarled supply chains, pent-up consumer demand and geopolitical fragmentation due to Russia’s war in Ukraine led to a surge in prices. But these price spikes are likely a temporary phenomenon. Prices should begin falling as the forces that drove them fade.

The reversal of prices is particularly important because it will help deflate the debt burdens that have contributed to global inflationary pressures. This will reduce household borrowing costs, and thus increase disposable incomes. This is a key factor that will support the recovery of the world economy and, in turn, drive equity markets higher.

A rebound in equities is also likely as many investors expect the Fed to pause its rate-hiking cycle, which should lead to an economic slowdown and lower interest rates. The lower rate environment should also boost corporate profits.

Despite these positive signs, there are still plenty of reasons for investors to be cautious. A recession is possible, especially in advanced economies, as a result of further financial sector stress. In addition, a weakening Chinese economy could hurt emerging market (EM) stocks.

As a rule, the second year of a downturn is worse than the first. That is why bulls might find solace in the fact that major stock markets have fallen for two consecutive years only four times since 1928.

Investors may also take comfort in the fact that 2023 is unlikely to be a repeat of 2022. In fact, the S&P 500 index has risen in the second year after a down year on only three occasions since 1950.

Investors are advised to carefully weigh the risks and rewards of a global growth slowdown and rising interest rates against an expected economic rebound and lower inflation. The latter will improve consumer purchasing power and boost investment in the economy, which should benefit EMs and DMs. Moreover, lower rates should provide breathing room for the global economy to avoid a recession in the short term. However, the risk of a global recession in the long term is a concern for all investors.
Global Interest Rates

Interest rates have risen sharply over the past year. This has helped make bonds a more competitive alternative to stocks. However, GS Research believes higher rates will also help boost profit margins for high-quality companies with stable earnings and cash flow, such as utilities, health care providers and airlines.

Several major stock market indexes track global markets. These include the S&P 500, which measures the stock market performance of the largest 500 corporations in the United States. The S&P 500 is investable through ETFs offered by iShares, Xtrackers and Lyxor.

The Dow Jones Industrial Average, or the Dow Jones, is an American stock index created in 1884 by Charles Dow, publisher of the financial newspaper The Wall Street Journal. It was originally based on the shares of 11 railroad companies. The FTSE 100 is an important benchmark for the performance of the British share market. Its constituents are companies with a large market capitalization that are traded on the London Stock Exchange.

In Germany, the DAX 30 is one of the most important stock market indices. The TECDAX, meanwhile, represents the dynamics of the German industrial market and includes the 30 most important technology companies in the country. Finally, the Russell 2000 is an American stock index that measures the performance of small-cap companies on the US stock market.

It is worth noting that the US stock market has experienced an unusually strong first half in 2023. This has led some to question whether it can continue its upward trajectory over the second half of the year. However, over the long term, stocks have risen in the second half of the year more often than they have fallen.

The outlook for global economies and markets in 2023 is a complicated picture, with a number of factors shaping future economic performance. Investors should take into account the risks associated with these trends, but also keep in mind that they may present opportunities. Investors should be careful to understand the nuances of different market forecasts, as they will differ in terms of methodology and assumptions.
Global Equity Markets

The global stock market is gaining momentum, but investors remain cautious. In fact, most analysts think 2023 will be a tough year for stocks and the economy. Some, such as Goldman Sachs Research, believe the economy will slip into recession in early 2023. Others, like J.P. Morgan Research, expect a more gradual decline in the economy and the stock market.

Despite the pessimistic forecast, investors are still pushing higher on hope that the Cardboard Box Recession is close to ending and the world’s central banks will pause their rate-hiking programs. In addition, a rebound in corporate earnings should help to boost equity markets.

As of May 20, the MSCI World index is up 12% this year. Historically, the second half of a year has outperformed the first half in only 12 years. However, it is important to remember that a rebound following the end of a recession often occurs in stages and can take months before the recovery is complete.

In the US, the S&P 500 rose nearly 8% in the first half. Gains were led by technology and consumer discretionary stocks. Industrials, healthcare and real estate lagged. Investors also shrugged off the collapse of Silicon Valley Bank, which caused some market concern that it might trigger a wider financial crisis.

Asian markets climbed in January on optimism about China’s reopening and an apparent easing of regulatory pressure on internet companies. South Korea and Taiwan gained, while Japan fell. In February, regional markets were mixed as fears of a slowdown in China were offset by hopes that the economy was stabilizing. In March, the region jumped on signs that global growth is strengthening and that the ECB will delay raising interest rates.

In the developed world, equities are still rising on hopes that central banks will pause their rate-hiking efforts and that economic growth is stabilizing. In the emerging world, investors are also hoping for lower oil prices and increased central bank stimulus. As a result, emerging markets are outperforming the developed world this year. However, it is important to note that the performance of emerging markets varies greatly and can be volatile.