Despite inflation showing signs of easing, Fed policymakers signaled to continue raising interest rates throughout this year. In addition to hawkish comments from Fed officials, weak economic data fueled recession fears. U.S. retail sales dropped 1.1% last month, while factory production fell 0.6% for the first time since June.
Amid worsening macroeconomic conditions, the World Bank recently cut its 2023 economic growth outlook to 1.7% from its previous projection of 3%. The revision was led by a significant downgrade to the U.S. growth outlook, from an earlier projection of 2.4% to 0.5%.
Furthermore, the fourth quarter earnings season is expected to be weak due to high borrowing costs and other economic headwinds. Morgan Stanley expects the S&P 500 to plunge approximately 25% to a two-year low of 3,000 points as earnings season ramps up.
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