Key takeaways:

• The decarbonisation theme is expected to keep attention centred on critical minerals

• Investors may keep a close eye on valuations in the tech and consumer discretionary sectors amid an expected economic slowdown, with opportunities to the upside and downside

• Healthcare enters a post-COVID phase defined by a new environment 

• The performance of the US dollar could shape investor interest in gold this year

With trends that come and go, and major events that prove decisive for certain sectors, investors would know all too well that action is never far away in the stock market.

Whether it is segments that are leveraged to long-term tailwinds, stocks susceptible to the economic outlook, or sectors where investors are hoping for a change of fortune, here are five corners of the market that might be in the spotlight throughout 2023.

Critical Minerals

The last couple years have made it clear that the transition to renewables is well and truly underway.

Critical minerals have emerged as a lynchpin central to the decarbonisation thematic. This includes commodities like rare earths, cobalt, nickel, copper, and lithium. 

While demand for these minerals is likely to remain high, fuelled by growing demand for electric vehicles (EVs) and renewables, questions have emerged over recent months as to whether there is an abundance of supply that could weigh on near-term prices.

The year ahead is likely to offer greater insights regarding the supply-demand equilibrium for many of these critical minerals. Lithium is the main commodity in the spotlight due to its role in batteries - something that cobalt and nickel are also associated with.

On the other hand, copper is used in infrastructure, electronics, and EVs. Such is its importance, it is typically viewed as a barometer for global economic activity. Meanwhile, rare earths are used in magnets and associated renewables technology.

The year ahead will also offer a better understanding on EV uptake, with a growing number of car models now available across the world, and countries increasing their efforts to encourage new car buyers to make the switch as part of carbon emissions targets.

Technology

Following a volatile period over the last three years, it is unlikely the technology sector is suddenly about to quieten down. From the boom period during the middle of the pandemic, to the bust that ensued, a number of tech stocks are down more than 70%, or even 80% off their all-time highs. 

Investors will be assessing the moves of central banks around the world as they hike interest rates. To date, this has been one of the major headwinds for growth stocks, and particularly the tech sector, with valuation concerns front and centre given the difficulties in valuing distant cash flow.

Tech companies will need to contend with the risks associated with a slowdown in the global economy. This has the potential to reduce demand for consumer electronics, as well as business expenditure in areas like advertising and cloud-computing.

Companies will also be dealing with debt that needs to be serviced at higher borrowing rates. That means highly-leveraged businesses are vulnerable to the terminal rate for monetary policy.

Most observers expect a slowdown across the tech sector if the economy starts to look shaky. However, the key question that is likely to determine if tech stocks turn around last year losses is whether the sell-off now adequately reflects the expected downturn in growth and earnings.

Discretionary Retail

With growing expectations suggesting a global recession is likely in 2023, the consumer discretionary sector will ultimately be at the heart of that quandary.

If consumers continue to spend strongly and prop up the economy, both in Australia and overseas, discretionary retailers are likely to benefit. On the other hand, if spending starts to shrink as consumers deal with the fallout of sharply higher interest rates, sector earnings may be vulnerable to an adjustment.

The start of 2023 has been characterised by a number of encouraging, if not promising reports from ASX-listed retailers. This includes record sales and earnings from the likes of JB Hi-Fi (ASX: JBH) and Super Retail Group (ASX: SUL).

However, the market is forward looking, which means investors will need to consider what is likely to happen from this point in time, rather than what happened in the second half of last year. Will consumers continue to spend big in the face of a looming mortgage cliff? Just how much do consumers have in savings? Are concerns about a slowdown overblown?

Overseas, US retail stocks are trading on very high earnings multiples when reviewed and adjusted on a cyclical basis. Earnings have been propped up by multiple rounds of government support, while inflation has bolstered nominal earnings. If earnings start to deteriorate in line with a weaker economy, investors may need to grapple with valuations.

Healthcare

Often a sector where investors shelter from uncertainty, healthcare stocks are typically viewed as defensive and resilient businesses. This is because during an economic downturn, people tend to cut spending in discretionary areas rather than more important spending related to their health. It is for this reason that healthcare stocks are often thought of as counter-cyclical shares.

Over the last 12 months, the ASX healthcare sector features in the bottom half of performers among the major sectors. That largely follows a boom period for healthcare suppliers that provided equipment and testing during the pandemic. Investors will be focusing on the new normal' for these companies.

There are also key developments to watch in the healthcare sector this year, particularly in the US.

The Inflation Reduction Act, which was passed last year, includes a concerted focus to lower prices for pharmaceutical drugs. In September 2023, the government will announce the first of ten US drugs that will be subject to price negotiations under the Act. 

This negotiation process, which hasn't been fleshed out in detail as yet, is expected to take months, with the new prices taking effect from 2026. Furthermore, the Act requires manufacturers to pay a mandatory quarterly rebate if drug prices rise faster than inflation for certain high-cost Medicare covered drugs. The implications of this policy could reverberate among US pharmaceutical stocks.

Gold

The precious metal has experienced something akin to a resurgence at the start of 2023. Trading at its highest level since April last year, gold is suddenly back in demand, and a number of gold stocks are flying.

However, investors will be thinking ahead as to whether the fundamentals offer support for the rally to continue, or if there are signs that suggest the rally may be getting ahead of itself.

In the context of the current state of play, the price of gold has lifted as the dominance of the US dollar has subsided over recent months. Traders believe the Federal Reserve may soon pivot to smaller rate hikes, and then pause rates as the economy deals with a likely slowdown.

There is even some speculation that the central bank could be forced to slash rates later this year, which is typically a headwind for the greenback. 

Combined with an uncertain outlook, where the risk of a US recession increases with every rate hike, the gold sector is one corner of the market that could be quite telling in defining investor sentiment about the state of the global economy throughout the year.