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Expect a slight slowdown and volatility in the first half

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  • A recession in 2023 could be mild, but investors should prepare for volatility in the first half.
  • CFRA chief investment strategist Sam Stovall said markets will recover in the second half of 2023.
  • He expects the Federal Reserve to conclude its tightening and suspend further rate hikes by the third quarter of the year.

Any recession the United States faces in 2023 is likely to be mild, but investors should still brace for volatility in the first half of the year, according to CFRA chief investment strategist Sam Stovall.

He also wrote in a client note on Monday that the Federal Reserve could ease its pace of rate hikes in the first six months of 2023 and then pause tightening measures by the third quarter.

“We expect a mild recession, based primarily on employment strength,” Stovall wrote. “We see the market recovering in the second half as we expect the Fed to finish raising rates by the end of Q1/beginning of Q2 and pause until Q3 2023.”

Consensus forecasts from economists currently call for a 50 basis point rate hike at the next FOMC meeting on Wednesday, which comes a day after a crucial inflation reading in November.

Stovall added that he expects the once-dominant consumer discretionary and technology sectors — which bore the brunt of a tough stock market in 2022 — to recover by the end of 2023. He sees this coming at the expense of more defensive groups like consumer staples and utilities.

Additionally, Stovall called for continued outperformance in the energy sector amid the mild recession that is fueling its overall forecast.

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