Data Snack: Traders predict ‘recession risk’ will have the biggest impact on global markets in 2023
- The stock market rallied at the beginning of this year despite the Russia-Ukraine war and interest rates still rising.
- However, the sentiment amongst institutional traders seems to be that this rally will not last long. Traders shared their views on the 2023 market outlook in the annual e-Trading Edit survey by JPMorgan.
The stock market rallied at the beginning of this year despite the Russia-Ukraine war and interest rates still rising. But why? A combination of seller exhaustion and high optimism from retail traders was behind the move.
However, the sentiment amongst institutional traders seems to be that the rally will not last long. While they did not divulge their trading secrets, traders across asset classes shared their views on the 2023 market outlook in the annual e-Trading Edit survey by JPMorgan. Here are the takeaways:
Traders fear a recession and inflation
According to institutional traders, the biggest effect on markets this year will come from ‘recession risk’. Yes, last year, Treasury Secretary Janet Yellen said that the US economy is in a state of transition, not recession. But institutional traders are not buying it.
- Almost a third of institutional traders (30%) predict that a recession will have the most impact on markets this year. After a roaring 2021, what goes up must come down. Traders are forecasting that the economy will contract and stock prices will go down in 2023.
- The second-biggest worry is inflation. At least 26% of investors plan to adjust their strategies to keep their portfolios from decreasing in value.
- Other concerns include geopolitical conflict (19%), market and economic dislocation (14%), government policy change (9%), and ESG and climate risk factors (1%).
When asked, "What is your outlook for the impact of inflation when pricing it in for 2023?" 44% of the traders said they believed inflation would go down.
In the US, 58% of traders expect inflation to level off, while 41% of traders in the UK predict inflation to decrease.
While pandemic-related fears may have subsided for this year, the uncertainty caused by the recession, inflation, and geopolitical conflict will cause volatility in the market conditions ahead.
When asked about the greatest daily trading challenge in 2023, almost half (46%) of those surveyed said 'volatile markets' will be their greatest daily trading challenge this year.
Is AI the next big thing?
The meteoric rise of ChatGPT, and the recent announcement of Bard – Google's artificial intelligence chatbot – has AI on everyone’s radar. Institutional traders are no exception.
When asked, "In the next three years, which technologies will be most influential for trading?" 53% of traders said artificial intelligence and machine learning technology would have the most influence. 14% of respondents chose "API Integration," and only 12% chose "Blockchain/Distributed Ledger Technology."
And speaking of blockchain technology, 72% of traders surveyed said they "have no plans to trade crypto / digital coins." 14% said they plan to start trading it within the next five years, and only 8% are currently trading crypto.
It may be that blockchain has either lost its shine or that everyone, including institutional traders, is waiting for the Biden administration to move forward with digital asset regulation before jumping in.