Q4 2023 Outlook: 3 Pros’ Stock Market Predictions

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Wall Street is abuzz over stock market predictions heading into the final quarter of a relatively strong year for equities. August’s surprise downturn has led some to suspect an imminent correction heading further into September, historically the weakest month for stocks. Others are confident that stocks are bound to reach new highs before the new year.

So, what’s the outlook for the fourth quarter?

Well, after August’s mild pullback that saw the S&P 500 lose more than 4.5% of its value at its trough, it seems the bulls are back on parade. Indeed, from the S&P’s bottom on Aug. 18, stocks are now up a little more than 2% since then. This also goes for the tech-centric Nasdaq Composite, which is up about 4% since it’s August trough.

The success of stocks in the final quarter of the year may well rest on the Federal Reserve. Despite the central bank’s seemingly victorious battle against inflation, several Fed members (including Fed Chair Jerome Powell) have hinted at the possibility of more rate hikes to come.

“We are prepared to raise rates further if appropriate, and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective,” Powell said at the annual Jackson Hole Economic Policy Symposium last week.

Economists, however, are on recession watch. Some believe the Fed’s aggressive tightening campaign is bound to eventually slow down relatively resilient hiring and spending, which have mostly held strong through the year. The notion of more rate hikes to come only adds to the tension.

Analysts are also on edge over the potential of a slowdown in earnings heading into Q4. The S&P and Nasdaq’s respective rallies have largely been on the back of this year’s artificial intelligence (AI) craze, despite some weakness in other sectors. This includes Energy, which suffered a more than 50% year-over-year (YOY) drop in profits in Q2. While this is largely due to last year’s surge in oil profits from the war in Ukraine, Energy still represents one of the S&P’s major soft spots.

With the S&P and Nasdaq up about 16% and 33% year-to-date (YTD), respectively, what do the experts think about the market’s trajectory in Q4?

3 Pros’ Stock Market Predictions

According to Richard Saperstein, Chief Investment Officer at Treasury Partners, last month’s volatility may just be the beginning. Saperstein believes there’s more volatility to come as investors start to consider the possibility of a wider economic slowdown. However, that doesn’t mean it’s time to dump your holdings quite yet.

“Our message to investors is to maintain equity exposure with overweights in large cap technology and oil stocks. Municipal bonds present attractive alternative opportunities at current levels,” Saperstein says.

Meanwhile, Adam Turnquist, Chief Technical Strategist for LPL Financial, thinks the conditions surrounding this year’s bull rally may be setting up a Q4 slowdown. Specifically, Turnquist believes the surge in growth stocks may lead to a reversal heading into the final quarter of the year.

“Since 1979, when growth outperformed value in the first half, it historically outperformed again in the second half. However, when the growth-value spread exceeded 5%, as it is now, value modestly outperformed growth in the second half,” Turnquist told USA Today.

Finally, JPMorgan recently released its 2023 outlook for the rest of the year. According to its analysts, stocks stand to “finish strong” in Q4 despite some monetary headwinds. The final stretch may also offer some rebalancing for smaller capitalization companies that have enjoyed a quieter year than the likes of Nvidia (NASDAQ:NVDA), for example. JPMorgan also points out the strong and stable returns of the bond market as a potential diversification opportunity for multi-asset class investors.

“After the late summer swoon in stocks, valuations look less stretched than they did before, offering another chance to rebuild equity exposure – especially for those pockets of the market that haven’t rallied as much this year. And while our timing to start legging into bonds last year was tough, higher interest rates today offer a better entry point and even more protection against any unexpected spikes.”

On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

With degrees in economics and journalism, Shrey Dua leverages his ample experience in media and reporting to contribute well-informed articles covering everything from financial regulation and the electric vehicle industry to the housing market and monetary policy. Shrey’s articles have featured in the likes of Morning Brew, Real Clear Markets, the Downline Podcast, and more.

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