In the video: Biden announces a ban on importing oil from Russia (Photo: Reuters)
It has not been an easy year on Wall Street.
After the era of "cheap money" came the Fed's war on inflation and interest rate hikes that made it clear to traders - the celebration was over.
The Nasdaq index fell by more than 30 percent, the Dow Jones recorded a more moderate decline of about ten percent, and technology stocks, the jewel in the crown, suffered severe blows.
Now, the question is not only what was, but also what will be.
"There is no doubt that it was a particularly stormy year on the stock exchanges around the world and on Wall Street in particular, however, alongside the historic declines that brought down large companies significantly,"
explains Shmulik Karpf, director of research in the investment advisory department at Bank Leumi,
"there are companies that showed immunity from the rampant inflation and became to please the investors".
my red
The screens on Wall Street reflected mainly one color this year (Photo: AP)
Shmulik Karpf (Photo: Oren Dai)
Dr. Ron Eichel (Photo: Public Relations)
"During 2022, the optimistic trend that characterized the exit from the corona was reversed, when the global economy had to deal with the effects of several significant events: the Russian invasion of Ukraine and the geopolitical tensions it creates, a continuous increase in inflation and the slowdown in China," says
Dr. Ron Eichel, chief analyst at Colmax Capital Markets,
“Russia's invasion of Ukraine has led to a severe energy crisis, fuel prices in Europe have more than quadrupled since 2021, raising the prospect of energy shortages next winter and beyond.
In the third quarter, energy prices remained high.
More broadly, the conflict has also raised food prices in markets around the world and caused distress in low-income households around the world.
The ongoing inflationary pressures led almost all central banks in the world, including the American, European, British and Israeli central banks, to raise interest rates significantly."
Yuval Beer Even, director of peer investments in the investment division of Migdal Insurance,
elaborates more on the decline of the leading sectors: "Interest rates rose six consecutive times from a zero level at the beginning of the year to 4.25% today. The sharp increase in yields led to a rapid price adjustment in the stock indices, while the declines The technology stocks that benefited in the last decade from the low interest rate environment led the way.
The S&P index has fallen since the beginning of the year by about 18%, the Nasdaq index, which is biased towards technology, by about 32%, while technology companies that are not profitable and have benefited from dream prices due to future growth and the zero cost of financing, recorded decreases of 50-80%.
On the other side of the barricade, the energy sector which showed significant overperformance with a return of about 63% since the beginning of the year."
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Okay, so what's next?
Alex Zbzinski (Photo: Rami Zaranger)
Sabina Levy (Photo: Aya Ben Azri)
"In our opinion, the American economy is not on the way to a severe recession," believes
Alex Zabrzynski, Meitav's chief economist,
"serious crises usually occur after the bursting of a financial bubble or an asset bubble (dot.com, subprime, etc.). There doesn't seem to be any Now one (crypto not counted). Conversely, a drop in activity due to a rise in interest rates does not usually lead to a severe crisis, unless inflation returns and strikes a second time. If the events of the 1960s can serve as an example, we are now only in the first wave of rising inflation And let's hope the latter too. It shouldn't be very destructive to the economy.
"Unlike the previous crises, which were dealt with by quantitative easing, including lowering interest rates and injecting liquidity into the market, this time the situation is different, when the current crisis forces the central banks to adopt a restrictive monetary policy, something that will make it difficult for recovery of the capital markets," adds
Sabina Levy, head of the research department at Leader Capital Markets,
She also believes that the market will take time to recover: "The capital market has become accustomed to rapid corrections, and since 2001-2002, during which declines were recorded in the Israeli capital market, we have not experienced prolonged periods of a succession of declines in the markets. We fear that this time the correction may be longer, and we estimate, Because the current interest rate environment, combined with the slowdown in economic activity and the damage to consumers' pockets, will continue to cloud the sentiment in the markets."
Will the finger come off the interest clamp?
Fed President Jerome Powell (Photo: GettyImages, Drew Angerer)
Yuval Beer Even (Photo: Gal Harmoni)
Uri Greenfeld (Photo: Rami Zeranger)
The word "recession" continues to float - and its heavy shadow will probably be there in 2023 as well.
"It is better to put things on the table," warns
Uri Greenfeld, the chief strategist of Psagot Beit Investments,
"the effects of the interest rate hikes all over the world will be fully reflected during the first half of the year and the result will be a global recession.
Households are forced to deal not only with Sharp in the cost of living and a gross erosion of their real income, but also with high credit costs and a rapid decrease in available savings that are still left over from the Corona period. Accordingly, during the coming months we will feel the tightening of the consumer's belt around the world and the resulting damage to growth.
"Even businesses are not immune, of course, from interest rate increases. The cost of credit has increased, but this effect is not immediate, as the years when the cost of credit was low allowed many businesses to spread their debts over the long term. At the same time, it is clear that at the current interest rate, the viability of taking credit New for investment purposes has decreased significantly, which will be reflected in further damage to growth.
It is important to note that growth all over the world will encounter a headwind this year also because it is technical in nature but has an impact on everything. After the economic boom of late 2021 and early 2022, growth is slowing down in any case. Economies The house took advantage of the exit from the corona and the high savings to advance purchases of years and the businesses recruited high-wage workers to meet a demand that will not return. Now we are beginning to feel the mirror image of this period."
And what about inflation?
Greenfeld predicts that it will not continue to rise: "The good news of the recession we are entering is that inflation will finally go down. All over the world we are already feeling the decrease in the inflationary pressures of supply-side factors (transportation, shortage of raw materials, etc.), but also the increase in the influence of The factors on the demand side, which leaves inflation high.
"In 2023, we expect to see a combination of two factors that will lower inflation significantly: on the one hand, the supply side will become deflationary, meaning that we can expect a decrease in the prices of various products such as cars, furniture or large electrical goods.
On the other hand, the recession and the increase in unemployment that will follow will release pressure from demand-side inflation.
The housing section, which contributes a large part of the current inflation all over the world, is expected to moderate, when in the US, for example, we are already seeing a real slowdown in the inflation of new leases."
Invest or sit on the fence?
And finally, the question arises of what will happen with the stock market.
Obviously, no one can guarantee anything, but there seems to be room for optimism.
"The consumer discretionary sector includes companies with whom the consumer meets in many cases when he buys a pair of shoes, drinks a coffee or buys a new car," Karpf explains the decline of the past year, "the shares in the sector registered a sharp decline of about 40%. The responsible The main decliner and the one who pulled the sector down is of course Amazon which was cut by 50% and lost a trillion dollars in value (and this is not a typo).
In terms of market capitalization, other companies in the sector are Tesla, Home Depot, Nike Starbucks and more. These companies, unlike food and beverage manufacturers , were unable to pass on to consumers the increase in the line of expenses, which jumped as a result of challenges they experienced with difficulties in the logistics chain, along with an increase in the cost of employee wages and more.
"Another sector that has been affected is the information technology services sector (IT) which has experienced sharp declines of approximately 30% since the beginning of the year. The companies that make up the sector are actually technology giants such as Microsoft, Nvidia and Apple, which are often characterized as growth companies. Despite being defensive and having high financial strength , they recorded sharp price decreases this year due to a significant slowdown in the rate of revenue growth which affected the pricing of the growth stocks.
In addition, the line of expenses experienced a jump due to a sharp increase in salary costs, logistics and supply costs, and of course let's not forget the significant increase in interest that resulted in the revaluation of the future revenue flow which naturally hurts growth companies to a greater extent."
When will we return to a bull market?
Hard to tell (Photo: GettyImages, Timothy Clary)
"The experience of the last 70 years in the US shows that the year 2023 is highly likely to be positive for the stock market, despite the slowdown in growth or even a recession," says Zabrzynski, and Greenfeld sharpens: "The stock market will not record another year of negative returns.
Since the beginning of the 1930s of the last century, the capital markets have recorded two consecutive years of rate decreases in only two cases (1973-1974, 2000-2002) and the economic environment is not such as to justify another year of rate decreases this time.
This does not mean, of course, that from here on the markets will only go up every day.
Entering a recession in the first half of the year will put pressure on companies' profits, and it is hard to say that this scenario is fully priced in, but if there are no big surprises, the world will return to growth in the second half of the year and the central banks will start talking about interest rate reductions towards the end of the year.
All this is expected to give a boost to the markets."
Beer Even is not in a hurry to talk about positives in the market: "The year 2023 is expected to continue the volatility registered in the markets. We are expected to see the effects of the sharp interest rate increases on the economy and the probability of a recession is at higher levels than the historical average. The forecasters' consensus predicts a year that will start negatively, but will be accompanied by further increases in the stock market with a decrease in inflation pressures and interest rates. Another significant impact on the economy and stock indices will come this year from the direction of China, which is sharply changing its corona policy."
Sectors worth following
Shmulik Karpf, director of research in the investment advisory department at Bank Leumi:
"The cyber sector has become very attractive as it includes high-quality growth companies whose prices have been significantly cut and therefore now represent a worthy alternative, unlike what they were last year. Until now, the pricing kept investors away, but at the pricing levels This is a high risk option that should be considered.
The chip sector is also expected to benefit from a positive wind because it is at a very critical technological junction - the field of AI, industry and automation as well as the electrification of vehicles - these give it real potential for years to come.
Along with this, a significant number of the companies in the sector recorded sharp share price declines this year because they belong to the technology sector which suffered more declines and some are considered growth stocks.
For all these reasons this is an interesting sector for next year.
The field of medical devices is also expected to be of interest to investors this year, even though it registered declines in the S&P500.
The sector consists of an interesting combination of value companies, alongside growth companies and the declines in rates constitute an attractive entry opportunity into a very defensive industry that manages to record overperformance both in periods of recession and in periods of economic upswing.
Finally, the entertainment and social media sector, which includes huge companies such as Walt Disney, the gaming companies, Alphabet, Meta and more, holds a significant opportunity.
This is a sector that has declined sharply in the past year due to the recessionary atmosphere that greatly affects the digital advertising industry, which is the anchor of income for these companies.
Among other things, alongside the slowdown in revenue growth, these companies recorded a jump in expenses due to the employment structure biased towards valuable human capital that characterizes them.
This combination led to significant underperformance in 2022, therefore in 2023 most companies in the sector can be exposed to multiples of between 12 and 15 times net profit only, this is a pricing that could only be dreamed of a year ago.
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