Stocks Could Return 10% Next Year. Be Ready for a Drop First.

For U.S. investors, 2023 could seem like two years wrapped in one, with the stock market first falling in anticipation of a recession, only to rebound as the outlook improves toward 2024. The one constant: The Federal Reserve will call the shots, much as it did this year, as it strives to curb rampant inflation and restore price stability.

Stocks could continue sliding as 2023 unfolds, particularly if the Fed’s interest-rate hikes push the economy into a recession. Then again, a more modest economic slowdown might be enough to reduce price growth to a level near the central bank’s annual target of 2%.