Global stocks likely to fall below lifetime highs by mid-2023

Global stocks likely to fall below lifetime highs by mid-2023

Global stocks are expected to recover from current levels but stay well below record highs this year and next, according to more than 150 equity analysts polled by Reuters.

The current downtrend was expected to be more persistent, underscoring the deteriorating outlook for risk assets, unlike previous episodes where investors saw corrections as opportunities to pick up stocks at a bargain.

The shift in view was due to the fact that stocks no longer have a backstop from central bankers, who are now focused on fighting decades-high inflation by hiking interest rates in many cases aggressively.

The US Standard Poor's 500 was nearly in an official bear market last week, as analysts predicted a dull year for equities in the previous poll, taken only days before Russia's Feb. 24 invasion of Ukraine.

The May 12 -- 24 Reuters polls covering 17 major indices showed most major bourses struggling to recover year-to-date losses by the end of 2022. Nearly all were expected to end the year below lifetime highs, and remain below them by mid- 2023.

Global equities are in the midst of a bear market that is not yet finished. As global economies move towards later cycle phases, earnings and macro data points tend to soften as the world's economies move towards later cycle phases. Our work shows that earnings revisions are slowing globally, said Michael Wilson, chief U.S. equity strategist and chief investment officer at Morgan Stanley.

Over three-quarters of analysts, 79 of 104, who answered a separate question, said the current downturn would last at least another three months.

While 48 said three to six months, 21 said six to nine months, six said nine to 12 months, and four said over a year. The remaining 25 chose less than three months.

The end of 2022 medians for 16 of 17 indices polled were downgraded from the February polls, underscoring that negative outlook.

The outlook for Mexico's IPC index was upgraded by a slight amount.

There is a greater uncertainty regarding what lies ahead, with a wider range of forecasts for end- 2022 compared to the February poll, which was three months closer to being three months closer.

Nearly 60% of analysts, 61 of 104, who answered an additional question expected volatility, which is off its highs for the year, expect to increase in their local markets over the next three months. The remaining 43 said it would decrease.

As growth slows and inflation remains sticky, markets will exhibit more volatility, said Sameer Samana, senior market strategist at Wells Fargo Investment Institute.

82 respondents said growth stocks would outperform growth stocks for the rest of the year while 23 said growth stocks would outperform.