Equity rebounds have been relatively short-lived over the past year as markets have trended lower.


  • Stocks have had a positive start to 2023, with the MSCI All Country World Index up 8.4% year-to-date.
  • As of 6 February, that left the index 19.2% higher than its 2022 low point in October.
  • However, various other rallies over the past 12 months have run out of steam, as fears have resurfaced over the pace of central bank tightening.

While we do expect an inflection point in 2023, conditions are not yet in place for a sustained rally.


  • Central banks do appear to be nearing the end of tightening cycles. But policymakers have yet to signal a dovish pivot.
  • The Fed's December policy meeting indicated that concern about rapid wage growth remains high, despite more muted inflation.
  • US unemployment in January fell to a 53-year-low of 3.4%, and in December there were 1.9 vacancies for every jobless American.

So investors should be selective as they prepare for the inflection.


  • Defensive sectors such as consumer staples and healthcare should prove relatively insulated from a weakening economy, while value stocks tend to perform well when inflation is high.
  • Some parts of the market are likely to reach inflection points sooner than others. We favor emerging market equities, early-cycle markets like Germany, and select stocks exposed to China’s reopening process.

Did you know?


  • Annual US inflation declined to its slowest pace in more than a year in December. The 6.5% increase in the consumer price index was also the sixth consecutive monthly decline, down from a peak of 9.1% in June.
  • The Fed slowed the pace of tightening in January, raising rates just 25 basis points following a 50bps hike in December and four consecutive 75bps moves.
  • But the dot plot pointed to a strong consensus among policymakers for at least a further 50bps of tightening—17 of the 19 policymakers forecast rates peaking above 5%.

Investment view


We think selectivity will be rewarded, and our positioning reflects that. We incorporate a combination of defensive, value, and income opportunities that should outperform in a high-inflation, slowing-growth environment, alongside select cyclicals that should perform well as and when markets start to anticipate the inflections.


Main contributors - Vincent Heaney, Christopher Swann


Content is a product of the Chief Investment Office (CIO).


Original report - Is the equity rally sustainable?, 9 February 2023.