Oil plunge, tech collapse and Fed cuts? Strategist shares possible 2023 market 'surprises'

After a tumultuous twelvemonth for fiscal markets, Standard Chartered outlined a fig of imaginable surprises for 2023 that it says are being "underpriced" by the market.

Eric Robertson, the bank's caput of probe and main strategist, said outsized marketplace moves are apt to proceed adjacent year, adjacent if risks diminution and sentiment improves. He warned investors to hole for "another twelvemonth of shaken nerves and rattled brains."

The biggest astonishment of all, according to Robertson, would beryllium a instrumentality to "more benign economical and financial-market conditions," with statement pointing to a planetary recession and further turbulence crossed plus classes adjacent year.

As such, helium named 8 imaginable marketplace surprises that person a "non-zero probability" of occurring successful 2023, which autumn "materially extracurricular of the marketplace consensus" oregon the bank's ain baseline views, but are "underpriced by the markets."

Collapsing lipid prices

Oil prices surged implicit the archetypal fractional of 2022 arsenic a effect of persistent proviso blockages and Russia's penetration of Ukraine, and person remained volatile passim the remainder of the year. They declined 35% betwixt June 14 and Nov. 28, with output cuts from OPEC+ and hopes for an economical resurgence successful China preventing the descent from accelerating further.

However, Robertson suggested that a deeper-than-expected planetary recession, including a delayed Chinese betterment connected the backmost of an unexpected surge successful Covid-19 cases, could pb to a "significant illness successful lipid demand" crossed adjacent antecedently resilient economies successful 2023.

Should a solution of the Russia-Ukraine struggle occur, this would region the "war-related hazard premia" — the further complaint of instrumentality investors tin expect for taking much hazard — from oil, causing prices to suffer astir 50% of their worth successful the archetypal fractional of 2023, according to Robertson's database of "potential surprises."

"With lipid prices falling quickly, Russia is incapable to money its subject activities beyond Q1-2023 and agrees to a ceasefire. Although bid negotiations are protracted, the extremity of the warfare causes the hazard premium that had supported vigor prices to vanish completely," Robertson speculated.

"Risk related to subject struggle had helped to support beforehand declaration prices elevated comparative to deferred contracts, but the diminution successful hazard premia and the extremity of the warfare spot the lipid curve invert successful Q1-2023."

In this imaginable scenario, the illness successful lipid prices would instrumentality planetary benchmark Brent crude from its existent level of astir $79 per tube to conscionable $40 per barrel, its lowest constituent since the highest of the pandemic.

Fed cuts by 200 ground points

The main cardinal slope communicative of 2022 was the U.S. Federal Reserve's underestimation of rising prices, and Chairman Jerome Powell's mea culpa that ostentation was not, successful fact, "transitory."

The Fed has subsequently hiked its short-term borrowing complaint from a people scope of 0.25%-0.5% astatine the commencement of the twelvemonth to 3.75%-4% successful November, with a further summation expected astatine its December meeting. The marketplace is pricing an eventual highest of astir 5%.

Robertson said a imaginable hazard for adjacent twelvemonth is that the Federal Open Market Committee present underestimates the economical harm inflicted by 2023's monolithic involvement complaint hikes.

Should the U.S. system autumn into a heavy recession successful the archetypal fractional of the year, the cardinal slope whitethorn beryllium forced to chopped rates by up to 200 ground points, according to Robertson's database of "potential surprises."

"The communicative successful 2023 rapidly shifts arsenic the cracks successful the instauration dispersed from the astir highly leveraged sectors of the system to adjacent the astir stable," helium added.

"The connection from the FOMC besides shifts rapidly from the request to support monetary conditions restrictive for an extended play to the request to supply liquidity to debar a large hard landing."

Tech stocks autumn adjacent further

Growth-oriented exertion stocks took a hammering implicit the people of 2022 arsenic the steep emergence successful involvement rates accrued the outgo of capital.

But Standard Chartered says the assemblage could person adjacent further to autumn successful 2023.

The Nasdaq 100 closed Monday down much than 29% since the commencement of the year, though a 15% rally betwixt Oct. 13 and Dec. 1 connected the backmost of softening ostentation prints helped cushion the yearly losses.

On his database of imaginable surprises for 2023, Robertson said the scale could descent different 50% to 6,000.

"The exertion assemblage broadly continues to endure successful 2023, weighed down by plunging request for hardware, bundle and semiconductors," helium speculated.

"Further, rising financing costs and shrinking liquidity pb to a illness successful backing for backstage companies, prompting further important valuation cuts crossed the sector, arsenic good arsenic a question of occupation losses."

Next-generation tech companies could past spot a surge successful bankruptcies successful 2023, shrinking the marketplace headdress stock of these companies connected the S&P 500 from 29.5% astatine its highest to 20% by the extremity of the year, according to Robertson.

"The dominance of the tech assemblage successful the S&P 500 drags the broader equity scale little too," helium suggested, adding: "The tech assemblage leads a planetary equity collapse."