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- Major stock markets will plunge 25% when a looming recession hits next year, Deutsche Bank says.
- Analysts also see earnings per share among S&P 500 companies falling to $195 in 2023 from $222 in 2022.
- After the Fed’s rate hikes, the investment bank expects markets to recover by year-end 2023.
Global equities are expected to drop sharply by mid-2023 as a looming recession hits the US, Deutsche Bank said in a note on Monday.
“We see major stock markets plunging 25% from levels somewhat above today’s when the US recession hits, but then recovering fully by year-end 2023, assuming the recession lasts only several quarters,” David Folkerts-Landau, chief economist at Deutsche Bank, wrote.
In the US, analysts see the S&P 500 rallying to 4,500 in the first half of next year, then selling off by more than 25% in the third quarter, before rebounding back to 4,500 by the end of 2023.
Deutsche Bank also sees earnings per share among S&P 500 companies falling to $195 in 2023 from $222 in 2022.
In an attempt to combat decades-high rampant inflation, the Fed will continue tightening and eventually send the economy into a full on recession next year.
“We read the Fed and ECB as being absolutely committed to bringing inflation back to desired levels within the next several years,” Folkerts-Landau wrote. “Although the costs in doing so may be lower than in the past for reasons we lay out, it will not be possible to do so without at least moderate economic downturns in the US and Europe, and significant increases in unemployment”
Folkerts-Landau added: “Our house economic forecasts call for a mild recession in GDP terms but one that is focused on goods and housing related products to which the S&P 500 is disproportionately exposed and where the pandemic boom was concentrated. Our earnings baseline therefore embodies what is close to a typical recession decline.”
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