STOCKS S&P 500 earnings in 2024, while our Equity asset allocation recommendations bull case of 5,100, which we see as slightly more likely than the bear case, is based on 20 times $255 per share in S&P 500 earnings in 2024. Market cap Style We look for stocks to find better balance between the macro environment and business LPL Research maintains a slight preference Growth-style stocks trailed their value fundamentals in 2023, tilting the for small and midcap stocks relative to counterparts throughout much of 2022. scales toward the bulls. large caps for 2023. Small cap stocks tend As the calendar turns to 2023, value still to perform better in early-cycle economies, looks to have a slight edge based on the OPTIMISTIC ABOUT which we believe will characterize 2023, still very challenging inflation outlook, high TECHNICAL TREND REVERSAL and they may benefit from attractive interest rates, and our positive view of the It has been mostly downhill for the valuations and a potential rebound in the energy sector. However, once inflation and S&P 500 since kicking off the year U.S. economy in the back half of 2023. interest rates start to come down, as we with a record-high. The downtrend Smaller companies are also relatively more anticipate in the first half of 2023, growth since January severely damaged insulated from economic risks in Europe. performance may be poised to turn around. market breadth and momentum. More recently, oversold conditions coupled with seasonal tailwinds Sectors Region underpinned a relief rally off the October lows. While some technical damage LPL Research recommends balanced The energy crisis in Europe has strengthened has been repaired, the S&P 500 exposure to defensive and cyclical sectors our conviction in favoring U.S. equities over remains in a downtrend and below in 2023 in a still uncertain economic their developed international counterparts, its declining 200-day moving environment. Our favored defensive sector is as the U.S. is simply better positioned than average (DMA). We are optimistic healthcare, while we also like the defensive Europe to withstand higher energy costs. for a trend reversal in 2023 and characteristics of the energy sector due to Developed international equities likely suspect it will be accompanied by constrained global supplies. The conditions require a synchronized global expansion to a pullback and/or consolidation for a style shift toward growth—such as outperform, which seems unlikely in 2023. phase for Treasury yields and the falling inflation, stabilizing economic growth, Our negative view of emerging markets US Dollar Index. and lower interest rates—may also drive a is based largely on earnings weakness, In terms of upside for next year, a turnaround in the leading growth sector, heightened geopolitical tensions, and confirmed reversal on the S&P 500 i.e., technology. Industrials is another sector persistent COVID-19 lockdowns in China, should open the door for a retest to watch as 2023 gets underway. though valuations are supportive, and the of the August highs near 4,300. U.S. dollar's rally has cooled of late. Probabilities for a breakout beyond this level would meaningfully increase if Treasury yields and the dollar continue to decline. History is also on the market’s side as the S&P 500 historically spends less than 30% of all trading days below its 200-DMA (since 1950). During this timeframe, whenever the index held below the 200-DMA for a six- month period, forward 12-month average and median returns were 14.2% and 18.3%, respectively. LPL RESEARCH