2022 was a not good very bad year for the stock market. Will 2023 be better?

Investors are celebrating the end of 2022 after high inflation and the Federal Reserve’s aggressive rate hikes made it a brutal year for stocks.

The S&P 500 is down 20% year-to-date, and with bonds simultaneously experiencing their worst year in history, there was no place to hide. After more than a decade of strong returns following the Great Financial Crisis of 2008, most investors are not accustomed to this kind of carnage.

According to New York University, the average annual return of the S&P 500 between 2009 and 2021 was a whopping 16.4%. But don’t expect anything like that in 2023.

The average investment bank price target for the S&P 500 next year is about 4,000, implying that the stock will only be up 4%. When Fortune aggregated forecasts from a broader selection of Wall Street economists and analysts, that figure rose to 4,150, or an 8% gain in 2023. Still, that’s not what most investors are used to.

While investment banks think the S&P 500 will finish just slightly higher in 2023 than it is now, the growing consensus from Wall Street is that the road ahead will be choppy.

“Our main message to investors is to be cautious. The Fed is trying to deliver a soft economic landing that, in our view, is very likely to fail and trigger a recession in 2023,” said James Demmert, chief investment officer at Main Street Research. Fortune. “Equity indices are vulnerable at current levels.”

Beware of a rocky start to 2023

On the other side of Wall Street, investment strategists are warning that equities are in for a rocky start to 2023 as the Fed enters the final stages of its inflation battle. Annual inflation, as measured by the consumer price index (CPI), has fallen sharply from a peak of 9.1% in June, reaching 7.1% last month.

But that didn’t stop the Fed from raising rates for the seventh time this year on Wednesday. Even as critics argue rate hikes are driving the US economy into recession, Fed Chairman Jerome Powell said this week he plans to “stay on track until the job is done.”

“Worse pain would come if we fail to raise interest rates high enough and if we allow inflation to become entrenched in the economy,” he said.

Against this backdrop, the stock market is likely to struggle in the near term.

Morgan Stanley’s chief investment officer, Michael Wilson, said the S&P 500 could fall to between 3,000 and 3,300 in the first quarter, or as much as 25% below its current level. Earnings will be dented as companies face rising borrowing costs and slowing economic growth, he said, arguing that investors are not yet anticipating the decline.

“Markets ignored the risk of a more aggressive Fed a year ago; the market now appears to be ignoring earnings risk,” he wrote in a Monday research note, adding that the “risk/reward” proposition of investing in the S&P looks “very unattractive” at this point.

Scott Ladner, chief investment officer at Horizon Investments, said Fortune that he expects S&P 500 earnings per share to fall 10% in the coming months as Fed rate hikes slow the economy and depress corporate earnings.

“We haven’t seen revenue decline yet,” he explained. “We’re entering a slower growth period, maybe a recession, and you just can’t get through recessions with revenues that don’t drop a bit.”

A comeback story in the second half?

While Wall Street’s consensus forecasts indicate stocks should fall in the first quarter of the year, it’s a different story after that.

“We expect that when the market bottoms out — maybe in the first quarter of the new year — we’ll start another bull market,” said Demmert of Main Street Research.While there may be further weakness in the early part of 2023, we expect 2023 to end with stock prices significantly above current levels.”

Horizon Investments’ Ladner said he also expects markets to experience some “pain” in the first quarter, but investors can expect solid returns after that.

“We think the second half of the year could be pretty juicy,” he said. “A lot of things that were quite a headwind in 2022 may become a headwind in 2023.”

Ladner argued that the main issues that have hurt stocks this year — inflation, China’s strict COVID-zero policy and the war in Ukraine — are likely to be resolved or improved by 2023, boosting markets.

The comeback thesis about the second half has become commonplace on Wall Street in recent months. Economists, investment banks and hedge funds are all warning that stocks – and the economy – are likely to struggle in the first half of the year and then recover.

Morgan Stanley’s Wilson argues that after falling to 3,000, the S&P 500 could rise to 3,900 by the end of next year as inflation falls rapidly, leading the Fed to suspend rate hikes as early as January.

While it seems like a comeback story in the second half would run counter to Wall Street’s consistent recession forecasts this year, Ladner pointed out that stocks can really perform well during recessions.

“Most people in the retail industry don’t get that, but it’s the lead-up to the recession and the early part of the recession that usually causes markets to struggle,” he said.

Ladner also argued that predictions that stocks will remain flat for a decade due to continued inflation, deglobalization and rising interest rates seem like “bets against innovation” to him.

“That’s a bad idea,” he said. “Just historically, that’s always been a bad idea in this country. So that’s not a bet we’re taking.”

This story was originally on Fortune.com

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