My 3 biggest stock market predictions for 2023

2022 is full of stock market surprises. I suspect 2023 will also bring some unexpected news for investors.

Despite this, I think there are already some clear trends that could shape the performance of the market this year.

For the first article of 2023, I will try to predict three trends that I think will have a big impact on investment profits in the coming year.

1. The market has not gone down

The UK market has been on an encouraging rally since mid-October. The FTSE 100 has risen almost 10% over the period and is now trading flat with a one-year view.

Even the hard-hit FTSE 250 has staged a partial recovery. At its lowest point on October 12, the mid-cap index is down 30% year-to-date. As I write, the loss that has been reduced for one year fell to 20%.

However, I don’t think the market downturn we saw last year is over.

In my view, the combination of rising interest rates and slowing economic growth will lead to more selling at some point during the first half of the year. I don’t think it will be too heavy, but it could provide some great buying opportunities.

I have money in my portfolio, hoping that I will be able to take some deals in the new year.

2. Dividend sharing will be large

UK savers can now earn 3% interest on their cash savings accounts. However, inflation is still over 10%, which could mean prices continue to rise.

This situation will be a new experience for many people. I would say that investors are starting to take dividend yielding stocks more seriously.

I think a company with an attractive dividend yield (for example, 4%-6%) and a stable growth rate is desirable. A stock like this should have the potential to generate rising cash income and capital, providing protection against inflation.

To help me pick stocks, the two numbers I look at are the dividend yield and the expected dividend growth rate for next year.

If these two numbers increase to at least 7%, I think the price can be attractive. But I always check that the forecast payments look reasonable when compared to the profit, debt level, and cash flow.

Now, I would avoid higher yields with low income cap and too much debt. A dividend cut may be in the pipeline.

3. The next ‘hot’ growth sector

Rising interest rates mean the cost of financing for new businesses is rising. I expect that for speculative purposes, loss-making companies will find it more difficult to raise funds in 2023 than in recent years.

I think this could be good news for Foolish investors. Companies that are small, profitable, and have good growth prospects are finally getting the attention they deserve.

On the other hand, companies that make a lot of noise but don’t generate a lot of cash can see their stock prices drop to more favorable valuations.

Many good small-cap stocks are experiencing a brutal sell-off in 2022. Despite the risks, I think there are good prices in today’s market for careful stock pickers.

I wish you success in the market in 2023!