A number of factors increased economic uncertainty
and contributed to historically negative equity
and fixed income market performance in 2022.
High inflation spurred aggressive Federal Reserve
interest rate hikes, leading to losses in both stocks and bonds.
No wonder investors are anxious
to turn the calendar to a new year.
The best way to work through a rocky patch is
to have a good map, keep looking ahead,
and take careful and deliberate steps.
We are pleased to offer our 2023 Outlook as a guide
to what we expect should be easier terrain
for investors by the end of 2023.
Our theme reflects the shift to a better investment backdrop,
especially after midyear.
We expect a moderate U.S. recession through the first half
of 2023, followed by a second-half recovery
and a sustained rebound into 2024.
As the effects of Federal Reserve rate hikes
and recession take hold,
we believe inflation should noticeably drop,
allowing the central bank to pivot back
to lowering interest rates.
In our view, lower interest rates
and inflation should allow a transition to stronger economic
and earnings growth, and stronger equity
and fixed income returns.
We expect corporate earnings to contract in 2023
as the projected recession pressures company revenues
and profit margins.
We also believe market expectations of a return
to earnings growth should lift equity valuations,
even before the recovery becomes noticeable.
Our outlook describes how
to manage the rocky road just ahead.
It also hints at potential opportunities
to position portfolios less defensively
as we eye early-cycle dynamics.
In the fixed income market, we forecast a decline
in U.S. Treasury yields during the recession
as investors anticipate eventual interest rate cuts
from the Federal Reserve.
We foresee a potential opportunity
for many fixed income asset classes
to produce positive returns and begin
to recover the losses experienced in 2022.
In real assets,
we see commodities extending their strong performance
of the past two years, as many remain
structurally undersupplied.
However, we feel that commodity price gains are likely
to be back-end loaded in 2023 due
to the forecasted first-half recession.
Finally, in the alternative investment space,
we believe portfolios may benefit more from equity
and credit market diversification
in the near-term.
This can be implemented through certain hedge fund
and private capital strategies.
But our Outlook also anticipates potential opportunities may
present themselves through the economy's transitions ahead.
For specific guidance across asset classes, sectors,
and industries, as well as our top five portfolio ideas
for next year, be sure to grab a copy of our special report:
2023 Outlook: Recession, Recovery, and Rebound.