A Year of Inflections

Year Ahead 2023


Year Ahead 2023

Navigating inflection points will be key to investment success in the year ahead. It will be our challenge and privilege to help guide you through them. We thank you for your trust and look forward to helping you realize your financial goals.

A Year of Inflections

In 2022, inflation stayed high, interest rates rose, growth expectations fell, and both equity and bond markets suffered. 2023 will be a year of inflections as investors try to identify turning points for inflation, interest rates, economic growth, and financial markets against a complex geopolitical backdrop.

What does it mean for investors?

History tells us that durable turning points for markets tend to arrive once investors begin to anticipate interest rate cuts and a trough in economic activity and corporate earnings. As we enter 2023, high inflation and rising interest rates alongside elevated earnings expectations and geopolitical risks inform our investment themes of defensives, value, income, and safety. But we think the backdrop for risky assets should become more positive as the year progresses. This means investors with the patience and discipline to stay invested should be rewarded with time. Investors currently sheltering from volatility will need to plan when, and how, to rotate back into riskier assets over the course of 2023.

What might derail a market inflection point?

The past year has demonstrated how policy choices not only add to volatility, but also have the potential to change the trajectory of asset markets. In 2023, the key policy risks include an escalation in the Russia-Ukraine war, economic policy missteps in China, heightened geopolitical tensions, and monetary or fiscal policy errors.

When will central banks cut rates?

Higher interest rate expectations were a key contributor to weak market performance in 2022. History tells us that, prior to market bottoms, investors usually begin to anticipate Fed rate cuts. We think inflation should be close enough to target by the end of the year for the Fed to consider rate cuts.

When will growth reaccelerate?    

Tight US monetary policy, the energy crisis in Europe, and ongoing  COVID-19 and property market challenges in China are likely to contribute to lower  economic growth and earnings declines in 2023. But we think global growth should trough during the year.

The Decade Ahead

This “Decade of Transformation” has already brought significant changes in the global economic, political, societal, and environmental landscape. But we think a more positive secular backdrop remains possible.

Despite heightened risks to the near-term outlook, lower equity valuations and higher bond yields should also be supportive of stronger returns for diversified portfolios over the decade ahead.

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