Investors hoping that the 2022 bear market will subside next year are likely to be disappointed, according to Wolfe Research's outlook for 2023. The firm sees the slump in stocks continuing, and even falling further from trading prevailing prices. "The current bear market isn't over – we expect another 25% to 35% drawdown from current levels," analyst Chris Senyek wrote in a note Tuesday. Bear market signals There are multiple reasons that Senyek sees stocks falling further next year instead of rebounding into a new bull market. The U.S. economy, and financial markets, have entered a new regime dominated by lower growth, higher inflation and interest rates and downward pressure on valuations, according to the note. In addition, the modern monetary theory bubble (arguing that government spending ought not be restrained by any concern over expanding debt ) isn't close to being completely unwound, according to Senyek. Because of this, and the backdrop that markets confront, Wolfe Research sees the Federal Reserve as likely to hike its benchmark interest rate higher, to 5.5%, which is a level that the market is not currently discounting. The firm also thinks the Fed may keep rates higher for longer, even into 2024, putting off a reversal that is currently priced in to stocks. Wolfe's checklist Of the 10 items on Wolfe's "market bottom" checklist, none have definitively turned positive. While the firm doesn't expect all the items on the list to flash positive in order to indicate that a bear market is coming to an end, some of the conditions still need to be heading in the right direction to signal a bullish pivot. All of this has added up to Wolfe Research's bearish view heading into 2023. The firm's 2023 S & P 500 operating earnings per share estimate is now $190, which is about 18% below the consensus estimate level. As a result, Wolfe recommends that investors don't get too excited about the possibility of a bull market rally, and recommends continuing to deploy defensive positioning across the board, Senyek wrote.