Ukraine, China And Europe Matter

No one knows for sure what 2023 will bring to Wall Street.

Nevertheless, recent history suggests what we might want to keep an eye on over the next 12 months.

War and Geopolitical Tension

The war in Ukraine and the growing tension between China and the western democracies plus free nations in Asia will continue to bring defense spending to the front of the queue when it comes to government budgets.

This phenomenon will likely continue long after the war with Ukraine is over. Governments are less and less willing to trust potential adversaries. Instead they want enough might to repel their foes.

That means companies like Raytheon (RTX) and its competitors should rake in some nice coin and the stocks should continue to rally in anticipation of even more to come.

China Spiraling Down?

Already China has a credibility problem with western businesses, from whom intellectual property got stolen. Corporations that once embraced the communist country are now quietly but swiftly relocating their factories to safer countries.

On top of that, there’s a failed COVID-zero policy that seems to have done nothing to help China and everything to hurt it.

And of course China is suffering the ill effects of a property boom and collapse, plus population decline.

With all those things happening together it wouldn’t be surprising to see China’s economy collapse in on itself. In turn, that may prompt the country’s leader Xi Jing ping to distract attention from the imploding economy by invading Taiwan. That’s been a well-used strategy by dictators for centuries.

Either way — a collapse of China’s economy or an invasion of Taiwan — will hurt investors in emerging markets.

Recession Watch

The U.S. and Europe will likely remain on recession watch for much of 2023. Europe is still dogged by energy problems in general, and specifically by Germany’s strange energy policy which has mean ditching cleanish fuel, such as nuclear power, in favor of coal, a toxic mess if ever there was one.

Europe may dip into a recession, but many experts say it will likely be mild.

In the U.S. the voices seemed confused. The data don’t seem to show anything imminent happening to drag economy growth down into economic armageddon and send unemployment back to double-digits. It may happen, but so far it doesn’t look likely.

As always, things can change fast, so stay tuned and watch the data closely.