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Goldman Sachs chief U.S. equity strategist David Kostin became the latest prominent strategist to predict a two-part year in 2023 – a difficult and volatile first six months when stock prices adjust lower for falling profit expectations, followed by a modest rally in the second half.

Adding analytical depth to Goldman’s forecast, Mr. Kostin’s colleague, U.K.-based global strategist Peter Oppenheimer, outlined his argument as to why markets have yet to find a sustainable bottom and suggests ways to identify one when it happens.

Mr. Oppenheimer believes that the speed of interest rate hikes is a major deterrent to equity buyers. Despite the recent 12 per cent rally in the MSCI All Country World Index (which reduces year-to-date losses to 16.4 per cent), the strategist believes early 2023 will see investors selling equities as they gauge the negative and lagged effects of rate hikes on global economic and profit growth.

Goldman Sachs notes that the average cyclical bear market sees equities falling by roughly 30 per cent. They typically last 26 months, and stock prices on average take 50 months to recover to the previous peak. The current bear market is almost exactly 12 months old and the All Country Index is now 19 per cent below the November 2021 peak.

Mr. Oppenheimer also notes that the recent rally in equities represents a loosening of financial conditions, at a time when central banks are looking to tighten conditions. This sets the stage for more aggressive rate hikes than previously expected, and lower equity prices.

The strategist further emphasizes that market bottoms have historically been accompanied by valuation levels that are attractive relative to long-term history. He writes, “Valuations in equities have fallen a long way since the beginning of this year but this doesn’t mean to say they are cheap.” Price to earnings (P/E) ratios were previously pushed unusually high by ultra-low interest rates that are now climbing quickly.

Investors looking for lucrative entry points in global equities will have to be patient as the new year begins. According to Goldman Sachs, equity markets will trend lower until they are far more attractively priced, and the inflationary peaks are well behind us.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Caesarstone Ltd. (CSTE-Q) Shares in this countertop maker are trading at their lowest level in the past decade. The Contra Guys are detecting a bargain, even though the stock has been a disappointment of late. The company is conservatively operated, has modest debt and has been profitable every year since it went public in 2012.

Beyond Meat Inc. (BYND-Q) When the company went public in 2019, its shares skyrocketed as investors bet that the meatless movement was finally having its moment. During the pandemic, Beyond Meat’s grocery store sales surged as curious consumers tried its vegan options. But these days, Beyond Meat has lost some of its sizzle. Its stock has slumped nearly 83% in the past year. Sales, which the company had expected to rise as much as 33% this year, are now likely to show only minor growth. The New York Times takes a look at the company’s fall from popularity - and whether the stock and the fake meat industry can regain its glory.

Walt Disney Co. (DIS-N) Can the entertainment giant bank on another hit sequel? That appears to be the hope behind the company’s surprise decision to bring back former chief executive Bob Iger to replace Bob Chapek. The decision was largely cheered by Wall Street, with Disney’s stock gaining more than 6 per cent on Monday to cut its loss to 37 per cent for the year to date. Yet analysts and some investors say that a returning CEO repeating their past success is not a given, and the decision to once again hand them the reins may be a sign that a company’s culture is sputtering. David Randall of Reuters tells us more.

The Rundown

If you want 5% returns and more, corporate bonds look good in comparison to GICs

High rates are a big part of the surge in interest in guaranteed investment certificates lately, but safety plays a big role as well. What do you get if you lose the guarantee and instead invest in a bond offering comparable yields to GICs right now? Rob Carrick says two benefits stand out – somewhat higher yields and the potential for capital gains if interest rates fall meaningfully before a bond’s maturity date is reached.

In emerging markets, the bulls are back again

After some of the biggest losses in emerging markets on record this year the bulls are back, betting that the time has come for a rebound. With caveats that global interest rates stabilize, China relaxes COVID restrictions and nuclear war is averted, annual investment bank forecasts for 2023 suddenly have some pretty lofty predictions for emerging markets, Reuters reports.

Others (for subscribers)

‘The consumer is about to get squeezed’: What TD is now forecasting for housing, interest rates and the loonie

Number Cruncher: 12 companies poised to rebound following economic storm

Number Cruncher: 13 U.S. mid-cap stocks that may be overlooked by the market

Wednesday’s analyst upgrades and downgrades

Tuesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: Chairman cashes out $1-million from this energy stock yielding nearly 10%

Carl Icahn holds sizeable short position in GameStop

Globe Advisor

Want to know which way markets are headed? There’s a popcorn index for that

Big Three fast-food chains remain a bright spot for investors as economy slides into recession

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Ask Globe Investor

Question: I am 86 years old, and I need help. Are Harvest ETFs a safe place to invest? I’m referring especially to HPF, HDIF, and HHL.

Answer: It depends on what you define as “safe.” If you mean zero risk to capital, the answer is no. Stick with guaranteed investment certificates and high-interest savings accounts. Here’s a closer look at the funds you mention.

HPF is the trading symbol for the Harvest Energy Leaders Plus Income ETF. It invests in a portfolio of 20 global energy companies, so you’re buying big oil and gas stocks – a market sector that is doing well right now but is historically volatile. For example, this fund was up 38.5 per cent in the first 10 months of 2022 and gained 34.6 per cent in 2021. But it was down 38.1 per cent in 2020 and 18.3 per cent in 2018. The average annual compound rate of return since inception is negative 1.8 per cent. Harvest rates the fund as high risk.

HDIF is the Harvest Diversified Monthly Income ETF. It is a fund of funds that is designed to provide steady monthly income through a portfolio of equally weighted Harvest ETFs. These provide exposure to large global companies diversified across key sectors such as health care, global brands, technology, utilities, and U.S. banks. This ETF was launched in February of this year, so we have no history by which to judge long-term performance. Since its startup, the units are down about 17 per cent. Harvest rates it as medium risk.

HHL is the symbol for the Harvest Healthcare Leaders ETF. As you might guess from the name, it invests in a portfolio of 20 leading global health care stocks such as Boston Scientific Corp., Eli Lilly and Co., and Merck & Co. Inc. It is a more consistent performer than HPF, with an average annual return since inception of 6.8 per cent. To Oct. 31, it was down a modest 1.5 per cent for 2022. Harvest rates it as medium risk.

Based on portfolio composition, HDIF is probably the “safest” of these three ETFs, but the fact it has lost ground since its launch suggests caution.

--Gordon Pape

What’s up in the days ahead

Veteran investor and former mutual fund head Robert Tattersall is selling some of his Canadian oil service stocks. He’ll tell us why.

Click here to see the Globe Investor earnings and economic news calendar.

More Globe Investor coverage

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Compiled by Globe Investor Staff