Could stocks’ volatility continue into 2023?

Among the key questions lingering over across financial markets is whether volatility could continue into 2023 as the calendar year turns a corner.

Markets were closed Monday to observe the Christmas holiday. In this shortened trading week, investors are expecting either relative quiet or further volatile sessions ahead due to low trading volumes.

Soft landing has been greatly sought in the battle against inflation. As 2022 approaches its final day, it seems that another battle could start against weaker economic growth. Some observers prefer to look upon both as two rounds in the same battle.

The Federal Reserve has maintained its hawkish stance amid weaker employment situation as well as jobs lost on monthly basis. These factors are poised to bring about a more nervous Wall Street and Main Street next year.

US stocks encounter chances for mild downtrend amid any signals that indicate slowdown due to overall poor economic conditions, so, volatility will likely be slightly, not extremely, higher. Equity prices could rise and fall in a finetuning process with key risks as well as important signals from the corporate world.

The state of the consumer and the state of the US economy could be more obvious early next January with the monthly jobs report and key manufacturing data. Employment has held robust stance so far, but there are signals that monthly payroll declines could be unfolded in the upcoming reports.

Goldman Sachs economists have indicated tired job surges by 2023’s Q2 while Bank of America’s analysts hold more pessimistic estimates. If the US economy happens to land someplace in the middle between both forecasts, then the US Personal Saving Rate will probably drop further due to less aggregate income. Consumer balance sheets will under additional pressure.

The disappointing economic scene will make Main Street anxious about the broader economy, including the stock market after a year of high inflation and lower stock and bond prices. Bearish sentiment on financial markets and any signals of frustration with the economy could persist. Consequently, markets will move from inflation-linked concerns to fears of a contracting employment situation.

The good news is that most analysts and economists anticipate minor economic dip next year, focused on the first half. Recession is heard everywhere these days, but the good news is that most observers expect 2023 to be totally different from the Great Financial Crisis (2007-2008). Markets are already coming off a tough round of the battle against inflation, so a limited technical recession early in 2023 is the final part of the cycle stocks can endure.