Inflation, recession and earnings among factors to drive U.S. stocks in 2023

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U.S. stock investors could not be more eager to turn the page on 2022, a brutal year dominated by market-punishing Federal Reserve rate hikes designed to tamp down the steepest inflation in 40 years.

Inflation, and the Fed's degree of aggressiveness in trying to contain it, will likely remain a critical factor driving equity performance as 2023 gets under way. But investors will also be watching for fallout from higher interest rates, including how tighter monetary policy ripples through the economy and whether it makes other assets more competitive with stocks.RECESSION OR SOFT LANDING?

Perhaps the biggest question that will sway stocks as the new year begins is whether the economy is headed for a recession,If a recession starts next year, stocks could be set for another slide: A bear market has never bottomed before the beginning of a recession, historic data showed. Recessions tend to hit stocks hard, with the S&P 500 falling an average of 29% during recessions since World War Two, according to Truist Advisory Services. Those declines, however, have usually been followed by a strong rebound.Investors are also concerned that corporate earnings estimates may not have fully factored in a potential slowdown, leaving more downside for stocks.

Consensus analyst estimates as of last week projected S&P 500 earnings to rise 4.4% in 2023, according to Refinitiv IBES. Yet earnings fall by an average annual rate of 24% during recessions, according to Ned Davis Research.

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Not only the United States, but also the United Kingdom

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