The 7 Biggest Stock Market Trends to Watch in 2023 thumbnail

The 7 Biggest Stock Market Trends to Watch in 2023

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With 2022 quickly becoming a dumpster fire, many beleaguered investors are looking to stock market trends to watch in 2023. Given the cyclical nature of the capital markets, several folks hold out hope that the new year can bring good tidings. While that certainly might happen for specific sectors, it’s best to prepare for a wide range of outcomes. Flexibility will be key moving forward.

Nevertheless, when it comes to stock market trends to watch in 2023, investors may bank on well-established trajectories. Fundamentally, the Federal Reserve’s commitment to attacking inflation through raising the benchmark interest rate dominates broader market and economic discourses. Essentially, developed societies must undo the excesses that helped us get through the coronavirus pandemic. Unfortunately, this action will almost surely incur growing pains.

Ultimately, then, a balanced approach will likely be pivotal in additional to the aforementioned flexibility. To gear up for another 365 days, below are the biggest stock market trends to watch in 2023.

Interest Rates Rise

A question mark among various percentages.. higher interest rates

Source: travellight / Shutterstock.com

As mentioned above, one of the top stock market trends to watch in 2023 will be the Fed. Throughout the outgoing year, the central bank aggressively smashed the accelerator of its tightening monetary policy. In theory, the associated rise in borrowing costs should cool inflation. However, the latest hotter-than-expected Nov. jobs report suggested that policymakers still have some ways to go.

Fundamentally, the fact that there are still more dollars chasing after fewer goods worries market investors. Under this scenario, interest rates will continue to rise. However, an article by the Atlantic Council noted that Russia’s defeat (in its invasion of Ukraine) represents the top global priority for the new year.

To be fair, the Atlantic Council piece is an op-ed so it’s speculation to ascertain what the Fed is thinking. However, it’s quite possible that policymakers have other goals besides inflation in mind regarding its monetary tightening. Either way, rising interest rates pings as one of the stock market trends to watch in 2023.

Defense Industry Booms

Source: Shutterstock

On a related note, those eyeballing the biggest stock market trends to watch in 2023 must put the defense sector in their crosshairs. Naturally, sector stalwarts like Lockheed Martin (NYSE:LMT) and Raytheon Technologies (NYSE:RTX) cynically benefitted from the conflict. So too did smaller players like AeroVironment (NASDAQ:AVAV), which develops the Switchblade drones.

Of course, defense-related stock market trends to watch in 2023 carry a controversial profile. For instance, you can make the argument that the Russians are the “bad guys” for dismissing diplomacy altogether. At the end of the day, none of this terrible destruction would have happened if cooler heads prevailed. Then again, human life is human life – and the poor almost always suffer at the hands of the elite.

Still, we must accept the geopolitical new normal of alarming flashpoints poised to escalate: Taiwan, China, Iran, North Korea, to name but a few. Recently, tensions between Serbia and Kosovo flared up. With the world rapidly becoming a dangerous place, the defense industry will almost surely boom.

Insurance Renaissance

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If one sector enjoyed consistently strong demand throughout 2022, it would be the broader insurance sector. With so many uncertainties on the horizon, I don’t see anything changing in the new year. Therefore, one of the biggest stock market trends to watch in 2023 centers on an otherwise incredibly boring industry.

Though an enterprise which arguably most folks take for granted, Progressive (NYSE:PGR) blossomed in the outgoing year. Since its January opener, shares gained over 27%. Fundamentally, Progressive benefits from a hostage audience, particularly with its auto insurance programs. As well, the Covid-19 crisis and the subsequent surge in serious car accidents provided a significant boost: a rise in volatile driving incentivized people to maximize their coverage.

Another point about the insurance segment focuses on inelastic demand. Basically, irrespective of price fluctuations, enterprises benefitting from inelastic demand will see consistent, predictable sales influxes. Again, it’s hard to imagine how this sentiment will change given the lessons learned from the pandemic.

Crypto Winter

Crypto coins on a phone screen showing stats for various cryptocurrencies.. Cryptos to Watch

Source: Chinnapong / Shutterstock

It’s probably safe to say that announcing belief in an extended cryptocurrency winter will not represent one of the most encouraging stock market trends to watch in 2023. To be fair, part of that assessment centers on the asset class itself. Cryptos represent their own thing if you will. So, it doesn’t have anything to do with the equities sector.

To that, I’ll counter by referencing crypto pricing dynamics tend to follow the same indices as the equities sector. In particular, benchmark digital assets share a very strong statistical correlation with the real M2 money stock.  Put another way, as the money supply increases (inflation), crypto valuations tend to rise as well. However, when the money supply decreases (deflation), cryptos suffer losses.

While it’s true that virtual currencies and stocks are different, because of the popularity of the former, publicly traded blockchain enterprises exist. However, if you give credence to the crypto winter concept, then these blockchain firms may suffer substantially.

Gold Shines Bright

An image of multiple gold bars

Source: Shutterstock

A time used to exist when gold and other precious metals – not cryptos – represented the “in” alternative asset. In the run up to and during the Great Recession, a new generation of doomsday-bunker prophets warned America to buy gold and avoid the horrors of hyperinflation. The thing is, it’s 2022 and some are still beating the long-expired gold-and-silver horse.

Nevertheless, even a broken clock is accurate twice during a 24-hour cycle. And it’s possible that one of the biggest stock market trends to watch in 2023 is the gold market. Laugh all you want but the yellow metal has been making some strong moves since early November this year. On an average basis, the spot price of gold bullion stands above both its 50 and 200-day moving averages.

Fundamentally, it’s possible that the fear trade may spark interest in precious metals. Because these commodities command universally accepted intrinsic value, they offer wealth stability. You might not get rich with bullion. But you probably won’t go bankrupt either (since they probably won’t go to zero).

Wear and Tear

a group of appliances in front of a blue wall, including a washing machine, a refrigerator, a microwave and more

Source: shutterstock.com/Digital Genetics

When assessing the biggest stock market trends to watch in 2023, it’s helpful to think fourth dimensionally if you will. By this, I’m simply referring to the recognition that subsegments in the economy typically don’t operate in a vacuum. What affects one sector can very well impact another. And that’s where the angle of wear and tear comes to the forefront.

Among individual names for stock market trends to watch in 2023, my radar targets Whirlpool (NYSE:WHR). Ordinarily, appliance manufacturers don’t generate much interest. Sure enough, WHR fell almost 41% on a year-to-date basis. However, because of work-from-home policies, our appliances are incurring much greater usage. Just by mechanical realities, the “scheduled” failure rate of these appliances will be pushed up.

Another idea to consider under this theme is Valvoline (NYSE:VVV). Amid rising layoffs at blue-chip firms, employers command greater negotiating power. And most of them could recall their workers, leading to increased vehicle usage. Cynically, this dynamic should boost VVV, making it among the intriguing stock market trends to watch in 2023.

EV-Only Crowd Suffers

Illustration of blue electric vehicle (EV) charging with dark black background

Source: shutterstock.com/DigitalPen

If you’ve watched Fox News – specifically its editorial arm – you’ll know it leans a bit to the right. Okay, let’s be real: the only turns on Fox News are right ones. That’s why it was so remarkable to hear pundits on this conservative outlet sing the praise of Japanese auto giant Toyota (NYSE:TM). Specifically, former Arkansas Governor Mike Huckabee supported Toyota head Akio Toyoda’s “silent majority” remark.

Essentially, Toyota represents an odd man out regarding not making an all-in wager on electric vehicles. Instead, it continues to build combustion, hybrid and EVs, enabling choices for consumers across the earnings spectrum. While EVs may very well be the future of transportation, TM’s leadership team argues that the infrastructure just isn’t ready.

Further, EVs remain pound-for-pound incredibly expensive compared to what you can get on the combustion side. With both monetary policy and job losses imposing severe pressure on the consumer economy, people will be looking for cheap transportation. Thus, in terms of stock market trends to watch in 2023, EVs might not be poised for a recovery if the economy doesn’t cooperate.

On the date of publication, Josh Enomoto did not have (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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.