As 2022 drew to a close, gloom prevailed among most US asset managers and investment banks. The almost unanimous conviction was that a deep recession will hit the United States in 2023. This, under the effect of aggressive monetary tightening decreed by the Fed to curb galloping inflation. The most listened to experts on Wall Street, predicted difficult times for financial markets. But their predictions turned out to be catastrophically wrong.
Mostly pessimistic predictions in an anxiety-provoking context
At Morgan Stanley, Mike Wilson renowned for its bearish positions, confidently announces the imminent dizzying plunge of the flagship S&P 500 index, which it sees falling by more than 25%.
A few blocks away, at Bank of America, Meghan Swiber and his colleagues assure their clients that US Treasury yields will collapse, with the bond market seen as an ideal safe haven during a recession. Meanwhile, Goldman Sachs, through the voice of its expert Kamakshya Trivedi, recommends betting on a rebound in Chinese assets. Believing that the Middle Kingdom will finally emerge from its languor after years weighed down by confinements linked to Covid.
On all fronts, Wall Street’s projection is therefore identical: American stocks will fall. Bonds will be the king investment and China should be the big winner after a troubled period.
A reality that turns into a fiasco
Except that the reality of 2023 will prove to be the opposite of the apocalyptic predictions of these omens. Against all expectations, and despite the Fed’s continued rate hikes, American stocks will experience a good year. The S&P 500 ultimately took off by almost 20% over the year.
With the return of inflation and the Fed’s reversal of monetary policy, interest rates rebounded sharply. At the same time leading to a fall in bond prices. Treasury bonds were far from playing their hoped-for role as a safe haven.
Finally, on the Chinese side, here again reality is responsible for ridiculing Wall Street’s expectations. The endless confinements decreed by the authorities as part of the zero-Covid policy have caused Chinese stock markets to plunge further, instead of the rebound fantasized by American experts.
Across the board, whether it concerns stocks, bonds or emerging markets, the most eminent experts in American finance will have completely failed in their predictions, victims of their visceral pessimism. Ultimately, 2023 will go down as a dark year for the credibility of the most eminent Wall Street strategists, unable to anticipate the powerful rebound in American stocks.
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