Here’s (Almost) Everything Wall Street Expects in… 2023

It may be one of the most anticipated recessions of all time, but that doesn’t mean it won’t hurt.

Barclays Capital Inc. says 2023 will go down as one of the worst for the world economy in four decades. Ned Davis Research Inc. puts the odds of a severe global downturn at 65%. Fidelity International reckons a hard landing looks unavoidable.

To kickstart the new year, Bloomberg News has gathered more than 500 calls from Wall Street’s army of strategists to paint the investing landscape ahead. And upbeat forecasts are hard to find, threatening fresh pain for investors who’ve just endured the great crash of 2022.

As the Federal Reserve ramps up its most aggressive tightening campaign in decades, the consensus view is that a recession, albeit mild, will hit both sides of the Atlantic with a high bar for any dovish policy pivot, even if inflation has peaked.

Still, humility is the order of the day for prognosticators who largely failed to predict the 2022 cost-of-living crisis and double-digit market losses. This time around, the consensus could prove badly wrong once again, delivering a host of positive surprises. Goldman Sachs Group Inc., JPMorgan Chase & Co. and UBS Asset Management, for their part, see the economy defying the bearish consensus as price growth eases — signaling big gains for investors if they get the market right.

Expect an uneven year in trading. Deutsche Bank AG sees the S&P 500 Index rising to 4,500 in the first half, before falling 25% in the third quarter as a downturn bites — only to bounce back to 4,500 by end-2023 as investors front-run a recovery.

Perhaps the easy money will be made in bonds at long last. After the asset class delivered the biggest loss in the modern era last year, UBS Group AG expects US 10-year yields will drop to as low as 2.65% by the end of the year on juicy coupons and renewed haven demand.

Meanwhile the crypto bubble has burst. Investment houses are in no mood to talk up the industry, after spending the boom years hyping up the speculative mania as same kind of digital gold for tomorrow, while peddling virtual-currency products to clients in traditional finance. Now, crypto references have been all but extinguished in 2023 outlooks.

And remember Covid? For global macro strategists at least, it’s a distant memory. The pandemic is only a material consideration with respect to China’s high-risk effort to rapidly reopen its economy — the outcome of which could have profound consequences for the world’s investment and consumption cycle.

  1. BASE CASE
    • Amundi Asset Management

      2023 will be a two-speed year, with plenty of risks to watch out for. Bonds are back, market valuations are more attractive, and a Fed pivot in the first part of the year should trigger interesting entry points.

    • AXA Investment Managers

      A policy-induced recession looks like the price to pay to get inflation back under control after a peak in late 2022. While we are confident that by the middle of 2023 the world economy will start improving again, we would warn against any excessive enthusiasm. Beyond the cyclical recovery, many structural questions will remain unanswered.

    • Bank of America

      Going into 2023, one expected shock remains: recession. The US, euro area and UK are all expected to see recessions next year, and the rest of the world should continue to weaken, with China a notable exception. The recession shock likely means corporate earnings and economic growth will come under pressure in the first half of the year, while at the same time, China’s reopening offers a reprieve for certain assets.

    • Barclays

      This year’s aggressive rate hikes should hit the world economy mainly in 2023. We expect advanced economies to slip into recession, and we forecast global growth at just 1.7%, one of the weakest years for the world economy in 40 years. We recommend bonds over stocks, as well as a healthy allocation to cash.

    • BCA Research

      Relative to subdued expectations, growth will surprise to the upside in 2023, as the US averts a recession, Europe experiences a robust recovery following the energy crisis, and China dismantles its zero-Covid policies. Growth will weaken towards the end of 2023, with a mild recession probable in 2024

    • BlackRock Investment Institute

      The new regime of greater macro and market volatility is playing out. A recession is foretold; central banks are on course to overtighten policy as they seek to tame inflation. This keeps us tactically underweight developed market equities. We expect to turn more positive on risk assets at some point in 2023 – but we are not there yet. And when we get there, we don’t see the sustained bull markets of the past.

    • BNP Paribas

      We expect a downturn in global GDP growth in 2023, led by recessions in both the US and the euro zone, with below-trend growth in China and many emerging markets.

    • BNY Mellon Investment Management

      With Europe and the UK in or approaching recession, China slowing sharply and the US “needing” one to bring inflation back to target, it is our belief that “Global Recession” remains our single most likely scenario – we give it a 60% probability.

    • Brandywine Global Investment Management

      The most intense period of economic softness is likely to be in the first half of 2023, based on the weight of leading indicators. However, there are a range of factors that could limit downside recessionary forces, including: the recent plunge in energy prices, the rebound in the US auto sector, and what could turn out to be a rapid decline in inflation. The conditions for a credit crunch, commonly seen ahead of other US recessions, do not exist currently.

    • Carmignac

      2023 will be a year of global recession, but investment opportunities will arise from the continued desynchronization between the three largest economic blocs – the US, the euro area and China.

    • Citi

      We are currently at a spot in the US business cycle where fears of inflation and the Fed are fading, but fears of a recession are not yet pronounced enough to lead to downside in equity markets. As we enter 2023, we expect US recession fears to become the driver. We remain underweight assets that are likely to underperform into a US recession.

    • Citi Global Wealth Investments

      We expect global growth will deteriorate for some of 2023. Markets will then increasingly focus on the recovery that lies beyond. We enter the year defensively positioned but expect to pivot as a sequence of potential opportunities unfolds.

    • Columbia Threadneedle

      Investors should not expect everything to go “back to normal” in 2023. Higher inflation and a weaker economic environment will mean not all companies will thrive.

    • Comerica Wealth Management

      In 2023, we envision an environment of moderating but persistent price pressures that will keep monetary policymakers on a steady, but less aggressive, tightening path. Our base case calls for mild recession early in the year and steady market interest rates.

    • Commonwealth Financial Network

      Our outlook for 2023 remains uncertain and will hinge on whether the Fed is able to rein in inflation while keeping us out of recession. But because the labor market continues to show strength, lending support to the consumer sector—the largest part of the economy—we are cautiously optimistic that the economy and markets will move in a positive direction in the new year, though there may be some bumps along the way.

    • Credit Suisse

      We expect the euro zone and UK to have slipped into recession, while China is in a growth recession. These economies should bottom out by mid-2023 and begin a weak, tentative recovery – a scenario that rests on the crucial assumption that the US manages to avoid a recession. Economic growth will generally remain low in 2023 against the backdrop of tight monetary conditions and the ongoing reset of geopolitics.

    • Deutsche Bank

      The recession we have now been anticipating for nine months draws nearer. A downturn may already be under way in Germany and the euro area overall thanks to the energy shock stemming from the Russia-Ukraine war. Our expectation for a recession in the US by mid-2023 has strengthened on the back of developments since early last spring.

    • DWS

      The looming mild recession in the US and the euro zone will be very different from previous downturns. Thanks to the demographically driven labor market, which is robust even in a downturn, workers will keep their jobs – for the most part – household incomes will remain stable and consumers will continue to consume.

    • Fidelity

      Markets want to believe that central banks will blink and change direction, negotiating the economy towards a soft landing. But in our view, a hard landing remains the most likely outcome in 2023. A recession is likely in the US and near certain in Europe and the UK.

    • Franklin Templeton

      Our base case is inflation will further recede as supply chain pressures ease and central banks will remain committed to tighter policy. However, the result of this policy is likely to be a slowing of the economy.

    • Generali Investments

      The start of 2023 is dominated by a global – if desynchronized – economic slowdown (cold) but still elevated inflation (hot). Our core scenario sees a mild euro-area recession, and an even milder US one. Risks are skewed to the downside: such brutal tightening of monetary policy and financial conditions rarely leaves the economy and markets unscathed.

    • Goldman Sachs

      We expect global growth of just 1.8% in 2023, as US resilience contrasts with a European recession and a bumpy reopening in China.

    • HSBC

      We think markets have become too complacent both in regard to the inflation and Fed outlook and the growth outlook. Virtually all of our cyclical leading indicators are still pointing to much more weakness on the growth side in the coming two to three quarters. The point here is that these signals are no longer confined to just one particular area of the economy. The weakness is much more broad-based now, which gives us even higher conviction in our call. We remain decidedly risk-off for the first half of 2023.

    • HSBC Asset Management

      Our “house view” continues to reflect an overall cautious stance. We do not advocate an aggressive use of risk budgets. 2023 is going to be a year about the macro cycle. We have likely reached peak central bank hawkishness as the headline inflation rates begin to cool and given the extent of tightening so far. Economies are in different situations or “parallel worlds,” which should create some relative-value opportunities for global investors in 2023.

    • Invesco

      Our base case anticipates inflation moderating, resulting in a pause in central bank tightening early in 2023. This enables an economic recovery to unfold later in the year.

    • JPMorgan

      The good news is that central banks will likely be forced to pivot and signal cutting interest rates sometime next year, which should result in a sustained recovery of asset prices and subsequently the economy by the end of 2023. The bad news is that in order for that pivot to happen, we will need to see a combination of more economic weakness, an increase in unemployment, market volatility, decline in levels of risky assets and a fall in inflation.

    • JPMorgan Asset Management

      Our core scenario sees developed economies falling into a mild recession in 2023.

    • Macquarie Asset Management

      The US will enter recessionary conditions in the first half following the UK and Europe; however, these recessions are likely to be over by mid-2023 and the developed world could see a synchronized recovery towards the end of the year.

    • Morgan Stanley

      In an environment of slow growth, lower inflation and new monetary policies, expect 2023 to have upside for bonds, defensive stocks and emerging markets.

    • NatWest

      We forecast a marked slowdown in global economic growth in 2023: 1.2% from 3.7% in 2022. Our projections are below market consensus and official forecasts (the latter typically do not show recessions—yet). The advanced economies are expected to endure a year of slowdown in 2023 with outright recessions in the US and UK and stagnation in the euro area – while China experiences a mild form of “economic long covid.”

    • Ned Davis Research

      We estimate 2.4% real global GDP growth in 2023 and assign a 65% chance of severe global recession. Recession in developed economies and a Chinese reopening present offsetting risks. Global inflation has peaked but will stay higher for longer.

    • Neuberger Berman

      We think the next 12 months are likely to see this cycle’s peaks in global inflation, central bank policy tightening, core government bond yields and market volatility, as well as troughs in GDP growth, corporate earnings growth and global equity market valuations. But we do not believe this will mark a reversion to the post-2008 “new normal”. We see structural forces behind persistently higher inflation — and therefore a persistently higher neutral interest rate, a higher cost of capital and lower asset valuations.

    • Northern Trust

      Northern Trust expects 2023 to be a turbulent year as conditions pivot from inflation and monetary policy fears to a weak global economy, but the firm also expects market volatility to somewhat temper due to lower inflation and a pause in central bank interest rate increases. A reduction in rates is not seen as likely. We see downside risk from lower corporate profits and revenues, but with upside potential from better sentiment.

    • Nuveen

      We expect the all-too-familiar headwinds of 2022 (persistent inflation, rising yields, hawkish central banks and a rocky geopolitical landscape) to drive volatility and uncertainty through the start of next year.

    • Pictet Asset Management

      Dollar weakness. Slower growth. A big drop in inflation. Muted equities. Bullish bonds. And a China rebound. All of this spells out the need for investors to remain cautious on risk assets – particularly through the first half of the year.

    • Pimco

      As we navigate a period of elevated inflation and an economic slowdown, our starting point is one of caution. Pimco’s business cycle models forecast a recession across Europe, the UK, and the US in the next year, and the major central banks are pressing ahead with policy tightening despite increasing strain in financial markets.

    • Principal Asset Management

      2023 is sizing up to be a better year for some segments of the market than 2022. Inflation and central bank policy will likely continue being a key focus for investors. Yet, while persistently restrictive monetary policy and the resulting US recession will weigh on the broad equity market outlook, it implies opportunities for both core fixed income and real assets.

    • Robeco

      In our base case, 2023 will be a recession year that – once the three peaks in inflation, rates and the dollar have been reached – will ultimately contribute to a considerable brightening of the return outlook for major asset classes. But we first need to brace for more pain in the short term.

    • Schroders

      The overall market outlook for 2023 will largely depend on the direction of US Fed monetary policy, which the firm sees pivoting, and whether or not a global recession would become a reality, which the team considers likely.

    • Societe Generale

      2023 should be a year during which the real economy finally deteriorates into a (mild) recession, monetary conditions gradually stop tightening, while systemic risk grows.

    • State Street

      The Fed can’t hike rates forever. Eventually earnings cynicism will find a bottom and optimism will be repriced. In the meantime, positioning portfolios for the fundamental weakness washing over the world, while acknowledging the potential for future positivity, takes combining offense with defense.

    • T. Rowe Price

      The global economy has passed from decades of declining interest rates into a new regime marked by persistent inflationary pressures and higher rates. Regime change clearly presents risks. But markets may have overreacted to some of those risks in 2022, creating attractive potential opportunities for investors willing to be selectively contrarian.

    • TD Securities

      2023 will see a balancing act from central banks, as they maintain restrictive policy to bring inflation down against a backdrop of recessions across most of the G-10. Inflation remains above target all year, and we anticipate a global recession.

    • Truist Wealth

      We expect next year will be the worst year for global growth since the 1980s, aside from the global financial crisis and Covid years. Many countries are set to experience recessionary pressures as the supersized rate hikes of the past year start to take stronger hold.

    • UBS

      We forecast a historically weak outlook: global growth of just 2.1% year-on-year in 2023 would be the lowest since 1993 excluding the pandemic and GFC. With 13 out of 32 economies expected to contract for at least two quarters by end 2023, our forecast approaches something akin to a “global recession.”

    • UBS Asset Management

      While a recession is a very real possibility, investors may be surprised by the resilience of the global economy – even with such a sharp tightening in financial conditions. The labor market will certainly cool, but healthy household balance sheets should continue to support spending in the services sector. Moreover, some of the major drags on the world economy emanating from Europe and China are poised to get better, not worse, between now and the end of the first quarter of 2023.

    • UniCredit

      We forecast a mild technical recession in both the US and the euro zone, followed by a below-trend recovery. The risks to growth are skewed to the downside, including from negative geopolitical developments, greater persistence in wage and price setting, and financial stability risks.

    • Vanguard

      Our base case is a global recession in 2023 brought about by the efforts to reduce inflation.

    • Wells Fargo

      Our base case scenario is for the Federal Reserve to deliver a bit more tightening than what the market is pricing. Meanwhile, we expect the Bank of England and European Central Bank to not hike as much as implied by the market. Inflation falls fairly quickly in the US, and but drops even faster in several other large economies. US core CPI drops below 3% annualized, but with a wide confidence interval around this forecast.

    • Wells Fargo Investment Institute

      We expect a U.S. recession in the first half of 2023, as well as a continued global economic slowdown, as last year’s hawkish monetary policy and money growth slowdown works with a lag. That should drive down corporate earnings growth and create important inflection points for investors over the next nine to 12 months.

  2. GROWTH
    • Amundi Asset Management

      Amundi expects global growth to slow next year to 2.2%, down from 3.4% in 2022, with several developed and emerging countries suffering stagnation.

    • Amundi Asset Management

      In Europe, the energy shock, compounded by inflationary pressures related to the aftermath of the Covid crisis, remains the main dampener on growth. The ensuing cost-of-living crisis will drag Europe into recession this winter before a slow recovery. But that doesn’t mean inflation will abate.

    • Amundi Asset Management

      This low growth-high inflation environment will spread to emerging markets, with China the exception. Amundi has cut China’s GDP forecast to 4.5% from 5.2%. That’s a lot better than China’s anemic growth levels of 2022 (3.2%) and is based on hopes of a stabilization in the housing market and a gradual re-opening of the economy.

    • Amundi Asset Management

      Given decelerating global growth and a profit recession in the first half of 2023, investors should remain defensive for now with gold and investment-grade credit the favored asset classes. However, they should be ready to adjust through the year to exploit market opportunities that will emerge, as valuations get more attractive. Headwinds should subside in the second half of 2023.

    • AXA Investment Managers

      A policy-induced recession looks like the price to pay to get inflation back under control after a peak in late 2022. While we are confident that by the middle of 2023 the world economy will start improving again, we would warn against any excessive enthusiasm. Beyond the cyclical recovery, many structural questions will remain unanswered.

    • AXA Investment Managers

      We expect inflation to fall back towards target over the coming two years as global growth slows, with recessions forecast in both Europe and the US.

    • AXA Investment Managers

      The Fed won’t want to cut rates as quickly as the market is currently pricing (second half of 2023) since they will want to be satisfied that they have properly broken the back of inflation. The price to pay for this will be a recession in the first three quarters of 2023 in the US which will trigger the usual adverse ripple effects over the entirety of the world economy next year. Any recession looks set to be mild, though our US GDP outlook of -0.2% and 0.9% for 2023 and 2024 is lower than consensus. Interest rates appear close to a peak – we estimate 5% – and are likely to remain at that level until 2024.

    • AXA Investment Managers

      We expect euro zone GDP to contract by 1% between the fourth quarter of 2022 and the first quarter of 2023, followed by a weak recovery. We expect the UK economy to enter recession this year and forecast GDP growth to average 4.3% in 2022, -0.7% in 2023 and 0.8% in 2024.

    • AXA Investment Managers

      If equities struggle with the growth environment, bonds can provide a hedge and an alternative to those investors putting a premium on income.

    • AXA Investment Managers

      Domestic and external headwinds will trigger a marked slowdown in emerging markets, with Chile and Central European countries in recession. Recovery should start in the second half of 2023.

    • Bank of America

      Going into 2023, one expected shock remains: recession. The US, euro area and UK are all expected to see recessions next year, and the rest of the world should continue to weaken, with China a notable exception. The recession shock likely means corporate earnings and economic growth will come under pressure in the first half of the year, while at the same time, China’s reopening offers a reprieve for certain assets.

    • Bank of America

      The end of Fed hikes and more conservative corporate balance sheet management lead to a positive backdrop for credit: Weaker prospects for growth and higher rates lead managements to shift prioritization to debt reduction from share buybacks and capex. Total returns of approximately 9% are expected in investment grade credit in 2023 in addition to a default rate peak of 5%, far below past recessions.

    • Barclays

      This year’s aggressive rate hikes should hit the world economy mainly in 2023. We expect advanced economies to slip into recession, and we forecast global growth at just 1.7%, one of the weakest years for the world economy in 40 years. We recommend bonds over stocks, as well as a healthy allocation to cash.

    • Barclays

      The global economy looks set to enter a stagflationary phase: as Europe and the US contract, growth remains sluggish in China, but inflation fades only gradually. Bringing inflation back to target, while output sinks and employment rises, will test central banks’ resolve.

    • Barclays

      Despite dire predictions, energy shortages in Europe this winter appear to have been averted, due in large part to unusually mild weather and efforts to curb consumption. But the crisis is not over. Unless energy prices moderate significantly, gaps in industrial production and GDP could persist, damaging competitiveness.

    • Barclays

      Controls on US semiconductor exports to China are part of a broader strategic agenda that, although manageable for now, could have substantial effects on China’s output and currency if escalated further.

    • BCA Research

      Relative to subdued expectations, growth will surprise to the upside in 2023, as the US averts a recession, Europe experiences a robust recovery following the energy crisis, and China dismantles its zero-Covid policies. Growth will weaken towards the end of 2023, with a mild recession probable in 2024

    • BCA Research

      Global bond yields will move sideways in the first half of next year, as the impact of falling inflation broadly offsets the impact of better-than-expected growth data. Yields should drop modestly in the second half of the year as the US economy edges closer to recession.

    • BlackRock Investment Institute

      Central bankers won’t ride to the rescue when growth slows in this new regime, contrary to what investors have come to expect. We see central banks eventually backing off from rate hikes as the economic damage becomes reality. We expect inflation to cool but stay persistently higher than central bank targets of 2%.

    • BNP Paribas

      We expect a downturn in global GDP growth in 2023, led by recessions in both the US and the euro zone, with below-trend growth in China and many emerging markets.

    • BNP Paribas

      We see the first quarter of 2023 as a turning point for US and euro zone government bond markets due to peaks in both central-bank policy rates and net supply net of QE/QT. In terms of fundamentals, the global growth downturn and disinflation point to lower yields throughout 2023.

    • BNY Mellon Investment Management

      Output is likely to fall in 2023, with risks to the downside. Inflation will probably fall too, but relatively slowly, remaining above target for some time, with risks to the upside. As a result, despite recession, interest rates are set to rise further, though with risks to the downside. All this stands in stark contrast to the “soft landing” narrative.

    • BNY Mellon Investment Management

      Our reading of the fundamentals is that there is a lot of pain yet to come. Our analysis suggests defensive positioning remains sensible for now, with cash and deleveraging trades our favoured asset classes.

    • BNY Mellon Investment Management

      Bonds have an edge over equities in the near-term due to their downside mitigation during growth slowdowns, while equities may outperform strongly in the latter part of 2023 and into 2024 if/and when economies rebound on the other side of recession.

    • BNY Mellon Investment Management

      Regionally, we prefer US equity to developed international and emerging markets primarily due to the higher (albeit still low) likelihood of an engineered soft landing, which would boost US equity disproportionally. The outlook suggests staying defensive on a sector and factor basis, preferring healthcare and consumer staples, and quality and low volatility, respectively. We also continue to favor higher income and value equities for their lower exposure to re-rating risk and wide multiples spread to growth.

    • BNY Mellon Investment Management

      Corporate credit remains at risk of wider credit spreads as economic activity deteriorates and financial conditions remain tight. We prefer investment grade to high yield and think there are selective opportunities in higher quality corporate credit at attractive yields.

    • BNY Mellon Investment Management

      China’s exit from Covid proves disorderly. Its stop-go approach to lockdowns damages confidence, dents policy efficacy, and results in economic stalling.

    • Brandywine Global Investment Management

      Outside of the US, the global economy is already in recession due to the effects of the strong dollar and a very weak China. China has started to back away, slowly, from the policies that have been depressing activity. If the dollar corrects lower as the US economy decelerates and inflation retreats, and the US avoids a bust, the world economy could be stabilizing by this time next year.

    • Brandywine Global Investment Management

      The powerful rally in the dollar in 2022 was driven by an alignment of factors that will not persist in 2023. The greenback is expensive, and relative growth prospects point to a weaker dollar next year. Relative monetary policy will also tighten more outside the US, notably in Europe. A weaker greenback will allow for some stability in EM currencies, which we think are broadly undervalued.

    • Carmignac

      2023 will be a year of global recession, but investment opportunities will arise from the continued desynchronization between the three largest economic blocs – the US, the euro area and China.

    • Carmignac

      In Europe, high energy costs are expected to affect corporate margins and household purchasing power, and thus trigger a recession over this quarter and next. The recession should be mild as high gas storages should prevent energy shortages. However, economic recovery from the second quarter onward is expected to be lackluster, with businesses reluctant to hire and invest due to continued uncertainty over energy supplies and financing costs.

    • Carmignac

      Unlike the bond market, equity prices do not incorporate the scenario of a severe recession, so investors need to be cautious. Japanese equities could benefit from the renewed competitiveness of the economy, boosted by the fall of the yen against the dollar. China will be one of the few areas where economic growth in 2023 will be better than in 2022.

    • Carmignac

      On the sovereign bond side, weaker economic growth is generally associated with lower bond yields. However, given the inflationary environment, while the pace of tightening may slow or even stop, it is unlikely to reverse soon.

    • Citi

      Global growth is expected to slow to below 2% in 2023 — excluding China, global growth is likely to run at less than a 1% pace, near some definitions of global recession. Inflation next year is likely to gradually decline but remain high on average.

    • Citi Global Wealth Investments

      We expect global growth will deteriorate for some of 2023. Markets will then increasingly focus on the recovery that lies beyond. We enter the year defensively positioned but expect to pivot as a sequence of potential opportunities unfolds.

    • Citi Global Wealth Investments

      We need to get through a deeper recession in Europe as it struggles through a winter of energy scarcity and inflation. We also need to see a sustained economic recovery in China, whose prior regulatory policies and current Covid policies curtail domestic growth.

    • Citi Global Wealth Investments

      When the Fed does finally reduce rates for the first time in 2023 – an event that we expect after several negative employment reports – it will do so at a time when the economy is already weakening. We think this will mark a turning point that will portend the beginning of a sustained economic recovery in the US and beyond over the coming year.

    • Citi Global Wealth Investments

      In the recovery period, we will also seek a reentry opportunity in cyclical growth industries, as value equities may prosper when supply pipelines are unable to meet revived demand.

    • Columbia Threadneedle

      Investors should not expect everything to go “back to normal” in 2023. Higher inflation and a weaker economic environment will mean not all companies will thrive.

    • Columbia Threadneedle

      While economic growth is slowing, at this point it doesn’t look like a recession in the US will be very deep. In contrast, economies in Europe are under significant stress and a deeper recession there seems likely.

    • Comerica Wealth Management

      We expect a retest of the October lows (around 3,500) in the S&P 500 Index, before investors price in a policy response and begin discounting recovery in late 2023 and early 2024. This scenario should experience flat profits in 2023 and expectations of 5% earnings gains in 2024, and we would view the S&P 500 as fairly valued within the range of 4,100-4,200 within the next 12 months.

    • Comerica Wealth Management

      Given our base case, the mild-recession scenario, as well as the possibility for a hard landing scenario, it is important for investors to remain cautious and not get too aggressive during bear market rallies. We anticipate heightened market volatility in the months and quarters ahead until the market gets comfortable with the potential for peaks in market interest rates, the dollar, and monetary policy along with troughs in GDP, P/Es, and EPS.

    • Commonwealth Financial Network

      Our outlook for 2023 remains uncertain and will hinge on whether the Fed is able to rein in inflation while keeping us out of recession. But because the labor market continues to show strength, lending support to the consumer sector—the largest part of the economy—we are cautiously optimistic that the economy and markets will move in a positive direction in the new year, though there may be some bumps along the way.

    • Commonwealth Financial Network

      We believe inflation is set to fall meaningfully throughout the coming year as the economy slows due to the Fed’s aggressive interest rate hikes. We’ve already seen positive signs that drivers of inflation in key economic sectors have improved or rolled over. If that continues, without kicking off a recession, the Fed just may achieve its elusive soft landing.

    • Credit Suisse

      We expect the euro zone and UK to have slipped into recession, while China is in a growth recession. These economies should bottom out by mid-2023 and begin a weak, tentative recovery – a scenario that rests on the crucial assumption that the US manages to avoid a recession. Economic growth will generally remain low in 2023 against the backdrop of tight monetary conditions and the ongoing reset of geopolitics.

    • Credit Suisse

      The dollar looks set to remain supported going into 2023 thanks to a hawkish US Federal Reserve and increased fears of a global recession. It should stabilize eventually and later weaken once US monetary policy becomes less aggressive and growth risks abroad stabilize. We expect emerging market currencies to remain weak in general.

    • Credit Suisse

      We expect the environment for real estate to become more challenging in 2023, as the asset class faces headwinds from both higher interest rates and weaker economic growth. We favor listed over direct real estate due to more favorable valuation and continue to prefer property sectors with strong secular demand drivers such as logistics real estate.

    • Deutsche Bank

      The recession we have now been anticipating for nine months draws nearer. A downturn may already be under way in Germany and the euro area overall thanks to the energy shock stemming from the Russia-Ukraine war. Our expectation for a recession in the US by mid-2023 has strengthened on the back of developments since early last spring.

    • Deutsche Bank

      We think the Fed and ECB will succeed in their missions as they stick to their guns in the face of what is likely to be withering public opposition as unemployment mounts. The moderate cost of doing so now will be much lower than failing to do so and having to deal with a more severely ingrained inflation problem down the road. Doing so now will also set the stage for a more sustainable economic and financial recovery into 2024.

    • DWS

      The recovery after the downturn will also be very modest. Growth rates of 0.3% (2023) and 1.2% (2024) for the euro zone, and 0.4% and 1.3% for the US.

    • Fidelity

      We expect Chinese policymakers to continue to focus on reviving the economy, investing in longer-term areas such as green technologies and infrastructure. Any loosening of Covid restrictions will cause consumption to pick up. The deglobalization that has arisen from the pandemic and tensions with the US will take time to work its way through but is a theme that will grow.

    • Franklin Templeton

      Our base case is inflation will further recede as supply chain pressures ease and central banks will remain committed to tighter policy. However, the result of this policy is likely to be a slowing of the economy.

    • Franklin Templeton

      Recession and subsequent recovery may well be rapid and create market volatility. We believe it will be as important as ever to be diversified and actively select investments, particularly when tilting toward risk assets.

    • Franklin Templeton

      Bonds will likely rally as the US Federal Reserve achieves its goals, whether the US economy’s landing is soft or hard. Equities are less likely to perform as well — unless the landing is soft. Otherwise, falling profits will offset falling bond yields and equities are unlikely to advance. That outcome is also a recipe for elevated equity volatility.

    • Generali Investments

      The start of 2023 is dominated by a global – if desynchronized – economic slowdown (cold) but still elevated inflation (hot). Our core scenario sees a mild euro-area recession, and an even milder US one. Risks are skewed to the downside: such brutal tightening of monetary policy and financial conditions rarely leaves the economy and markets unscathed.

    • Generali Investments

      We forecast a drop in global growth from 3.2% in 2022 to 2.1% in 2023. We expect barely positive US growth (0.3%), with even a mild contraction over the central quarters of 2023. We expect core CPI inflation to end 2023 slightly above 3% year-on-year. Europe is likely entering recession at the turn of the year, while the Covid policy relaxation in China, along with a better credit impulse, will support a mild recovery.

    • Generali Investments

      Selected EM markets offer value after years of underperformance, with dollar fatigue and China’s (mild) rebound both helping – we see EM as a target for positioning early for the post-recession environment.

    • Goldman Sachs

      We expect global growth of just 1.8% in 2023, as US resilience contrasts with a European recession and a bumpy reopening in China.

    • Goldman Sachs

      The US should narrowly avoid recession as core PCE inflation slows from 5% now to 3% in late 2023 with a 0.5 percentage point rise in the unemployment rate. To keep growth below potential amidst stronger real income growth, we now see the Fed hiking to a peak of 5-5.25%. We don’t expect cuts in 2023.

    • Goldman Sachs

      China is likely to grow slowly in the first half as a reopening initially triggers an increase in Covid cases that keeps caution high, but should accelerate sharply in the second half on a reopening boost. Our longer-run China view remains cautious because of the long slide in the property market as well as slower potential growth (reflecting weakness in both demographics and productivity).

    • Goldman Sachs

      After a sharp increase in bond yields this year, new and potentially less risky alternatives are emerging in fixed income: US investment grade corporate bonds yield almost 6%, have little refinancing risk and are relatively insulated from an economic downturn. Investors can also lock in attractive real (inflation-adjusted) yields with 10-year and 30-year Treasury inflation protected securities (TIPS) close to 1.5%.

    • Goldman Sachs

      Investors aren’t getting much compensation for the risk of owning equities or high-yield credit in comparison to lower risk bonds. As a result, equities and high-yield debt are particularly exposed to an economic slowdown or recession.

    • Goldman Sachs

      While bonds have been especially volatile of late, there are signs that these swings are peaking. Higher yields have also reduced the duration risk (the risk that a bond’s price will fall as rates climb) for fixed-income assets at the same time that economic growth is becoming more of a concern. That all suggests that risks are piling up for the equity market next year while bonds might become less risky.

    • Goldman Sachs

      As uncertainty about growth lingers, higher quality fixed-income assets — such as investment-grade company debt, asset-backed securities and mortgage-backed securities — may be attractive investments next year.

    • Goldman Sachs

      Markets are now pricing in a more dovish Federal Reserve, signalling an expectation that the US central bank will begin lowering its funds rate by the end of next year. Our economists, by contrast, don’t expect any rate cuts in 2023. If the US economy turns out to be more resilient than anticipated and inflation stickier in 2023, stock markets and Treasuries could fall in price.

    • Goldman Sachs

      With inflation still running hot, central banks are more likely to try to cool economic growth and tighten financial conditions than to boost them. And if they don’t fight inflation, there’s a risk that longer-dated bond yields will increase anyway because of rising long-term inflation expectations.

    • Hirtle Callaghan

      In the case of a soft landing, the picture is brighter for equities if investors can look through this next year’s earnings. Valuations have come down significantly, pricing in much of the bad news for this coming year. We are positive on the outlook for corporate growth looking a couple of years out if the Fed can achieve the soft landing it is hoping for.

    • HSBC

      We think markets have become too complacent both in regard to the inflation and Fed outlook and the growth outlook. Virtually all of our cyclical leading indicators are still pointing to much more weakness on the growth side in the coming two to three quarters. The point here is that these signals are no longer confined to just one particular area of the economy. The weakness is much more broad-based now, which gives us even higher conviction in our call. We remain decidedly risk-off for the first half of 2023.

    • HSBC Asset Management

      Bonds are the natural asset at this point in the economic and market cycle. We maintain a positive stance on the short-end of the US Treasury curve.

    • HSBC Asset Management

      European and emerging credit markets seem particularly interesting. Even though the economic situation is difficult, corporate balance sheets are in good shape, which should be a relative support in the months to come.

    • Invesco

      Our base case anticipates inflation moderating, resulting in a pause in central bank tightening early in 2023. This enables an economic recovery to unfold later in the year.

    • Invesco

      US and European central banks are tightening despite slowing growth, signs that inflation is peaking and the fact that financial conditions have already tightened substantially. We expect these factors to eventually turn the tide, leading to a pause in rate hikes materializing in early 2023.

    • Invesco

      We remain underweight equity due to the possibility of further weakness in growth in favor of fixed income, which now offers attractive 5-6% yields in investment grade or 8-9% yields in risky credits.

    • JPMorgan

      The good news is that central banks will likely be forced to pivot and signal cutting interest rates sometime next year, which should result in a sustained recovery of asset prices and subsequently the economy by the end of 2023. The bad news is that in order for that pivot to happen, we will need to see a combination of more economic weakness, an increase in unemployment, market volatility, decline in levels of risky assets and a fall in inflation.

    • JPMorgan

      The global growth outlook remains depressed, but we do not see the global economy at imminent risk of sliding into recession, as the sharp decline in inflation helps promote growth, but a US recession is likely before the end of 2024.

    • JPMorgan

      Global GDP growth in 2023 is forecast to climb 1.6%. Developed Market growth is forecast at 0.8%, US growth is forecast at 1%, euro area growth is projected to come in at 0.2%, China’s economy is forecast to grow 4.0% and emerging market growth is forecast at 2.9% in 2023.

    • JPMorgan

      In currency markets, further dollar strength is still expected in 2023, but of a lower magnitude and different composition than in 2022. The Fed pause should give the dollar’s rise a breather. Unlike in 2022, lower-yielding currencies like the euro are expected to be more insulated as central banks pause hikes and the focus shifts to addressing slowing growth — but this in turn makes high-beta, emerging market currencies more vulnerable. Weak growth outside the US should also remain a pillar of dollar strength in 2023.

    • JPMorgan

      At 2.9% in 2023, EM growth looks to remain well below its pre-pandemic trend, slowing modestly from 2022. EM excluding China is expected to slow to a below-trend 1.8% with wide regional divergences. In China, the full-year 2023 growth forecast is 4% year-over-year, where two quarters of below-trend growth are assumed as the economy loosens Covid restrictions.

    • JPMorgan Asset Management

      Despite remaining above central bank targets, inflation should start to moderate as the economy slows, the labor market weakens, supply chain pressures continue to ease and Europe manages to diversify its energy supply.

    • JPMorgan Asset Management

      Given this uncertainty about inflation and growth, and the chunky yields available in short-dated government bonds, investors might want to spread their allocation along the fixed income curve, taking more duration than we would have advised for much of the year.

    • JPMorgan Asset Management

      Within credit markets, we believe that an “up-in-quality” approach is warranted. The yields now available on lower quality credit are certainly eye-catching, yet a large part of the repricing year to date has been driven by the increase in government bond yields. High yield credit spreads still sit at or below long-term averages both in the US and Europe. It is possible that spreads widen moderately further as the economic backdrop weakens over the course of 2023.

    • Macquarie Asset Management

      The US will enter recessionary conditions in the first half following the UK and Europe; however, these recessions are likely to be over by mid-2023 and the developed world could see a synchronized recovery towards the end of the year.

    • Macquarie Asset Management

      For 2023, we are most positive on infrastructure, fixed income and agriculture. Listed equities and real estate face more headwinds in the near term, but there are still thematic opportunities in both asset classes and cyclical opportunities will present themselves as the downturns unfold and morph into recoveries.

    • Macquarie Asset Management

      Within credit, fundamentals remain strong in both investment grade and high yield markets. However, we are entering an uncertain macroeconomic environment with the impact from inflationary cost pressures and deteriorating growth likely to lead to weaker fundamentals. Against this backdrop, we believe defensive positioning within high-quality credit is appropriate.

    • Macquarie Asset Management

      China should see a steady acceleration in growth over the course of 2023 if policy easing steps up a gear, as seems likely.

    • Morgan Stanley

      In an environment of slow growth, lower inflation and new monetary policies, expect 2023 to have upside for bonds, defensive stocks and emerging markets.

    • Morgan Stanley

      Equities next year, however, are headed for continued volatility, and we forecast the S&P 500 ending next year roughly where it started, at around 3,900. Consensus earnings estimates are simply too high, to the point where we think companies will hoard labor and see operating margins compress in a very slow-growth economy.

    • NatWest

      We forecast a marked slowdown in global economic growth in 2023: 1.2% from 3.7% in 2022. Our projections are below market consensus and official forecasts (the latter typically do not show recessions—yet). The advanced economies are expected to endure a year of slowdown in 2023 with outright recessions in the US and UK and stagnation in the euro area – while China experiences a mild form of “economic long covid.”

    • NatWest

      Any acceleration in growth will be somewhat back-loaded and gradual in the coming year. Growth is forecast to regain momentum in 2024 as inflation pressures recede and central banks ease monetary policy, albeit cautiously.

    • NatWest

      Relative growth and relative policy were clear dollar supports in 2022, but each are set to turn in 2023 and we expect the dollar falls back to the pack, with increasing confidence by second quarter. CAD may weaken as a high beta USD. A more mature dollar rally opens long EM opportunities.

    • NatWest

      Europe is already in recession. Inflation will slow and the ECB will slow with it. But inflation risks are on the high side. A second phase of inflation, permitted by recovery in the second half, is more likely than a downturn that leads to rate cuts. Bearish risks to longer-term rates form a long list. We target 2.75% in 10-year bunds. This contrasts with our US rates views. Buy five-year Treasuries vs 10-year bunds – a hybrid steepener that captures the more advanced Fed and our global steepening bias.

    • NatWest

      We are not optimistic for a swift end to the war in Ukraine and a return of Russian energy to global markets anytime soon. OPEC is setting itself up to be in price-defense mode throughout 2023, and US production may continue to underwhelm as investment adjusts to fears of weaker demand. In turn, the slowdown in global growth may not bring with it a speedy drop in global energy prices.

    • NatWest

      If or when the dollar cycle turns is the key FX question heading into 2023. While uncertainties remain and the growth outlook is fraught with risks, a passing of the peak in global economic pessimism could lead to some recovery in European currencies in 2023. China’s slow and uneven reopening from Covid-19 lockdowns reduces appetite to position for a weaker dollar in antipodean currencies, particularly early in 2023, though a more decisive change in policies may alter that backdrop heading out of winter.

    • NatWest

      We forecast a recession in the US, with GDP declining by 0.4% year-on-year in 2023. We suspect we should see a relatively mild downturn in the current setting (peak-to-trough -1%) followed by a comparatively modest recovery (we expect below-trend growth of roughly 1% later in the year).

    • Ned Davis Research

      We estimate 2.4% real global GDP growth in 2023 and assign a 65% chance of severe global recession. Recession in developed economies and a Chinese reopening present offsetting risks. Global inflation has peaked but will stay higher for longer.

    • Ned Davis Research

      Like the global economy, the risk of recession weighs on the outlook for US economic growth in 2023. We project real GDP growth will end the year in a range of -0.5% to 0.5%. We see a 75% chance that the economy contracts for part of 2023 and give 25% odds to a soft-landing scenario.

    • Neuberger Berman

      We think the next 12 months are likely to see this cycle’s peaks in global inflation, central bank policy tightening, core government bond yields and market volatility, as well as troughs in GDP growth, corporate earnings growth and global equity market valuations. But we do not believe this will mark a reversion to the post-2008 “new normal”. We see structural forces behind persistently higher inflation — and therefore a persistently higher neutral interest rate, a higher cost of capital and lower asset valuations.

    • Neuberger Berman

      We do not anticipate a major uptick in defaults: the economy has historically been able to generate healthy growth with rates at these levels, balance sheets are generally strong and maturities are generally several years away, supporting a range of fixed income credit markets. That said, in our view, the sooner investors work higher-rates-for-longer into their credit analyses, the sooner they are likely to make what we regard as the necessary portfolio adjustments.

    • Neuberger Berman

      Consensus earnings growth estimates for 2023 did not fall in the same way as real GDP growth estimates, perhaps because high inflation has supported nominal GDP growth. As inflation turns downward but remains relatively high as the economy slows, we think earnings estimates are likely to be revised down. We also think dispersion will increase, favoring companies that are less exposed to labor and commodity costs and have more pricing power to maintain margins, and use less aggressive earnings accounting. We believe this will translate into greater dispersion of stock performance.

    • Neuberger Berman

      Private markets won’t be impervious to the ongoing slowdown. Exits are more difficult in volatile public markets, and while private company valuations tend not to fall as far as public market valuations, we do think they are likely to decline. Such a challenging environment is likely to result in performance dispersion that tends to favor higher quality companies, especially where management has well-defined growth plans as opposed to relying on leverage and multiple expansion.

    • Northern Trust

      Northern Trust expects 2023 to be a turbulent year as conditions pivot from inflation and monetary policy fears to a weak global economy, but the firm also expects market volatility to somewhat temper due to lower inflation and a pause in central bank interest rate increases. A reduction in rates is not seen as likely. We see downside risk from lower corporate profits and revenues, but with upside potential from better sentiment.

    • Northern Trust

      The firm expects growth to continue to be constrained globally, with some regions arguably already in recession and others on the precipice. It also believes that China’s pandemic-to-endemic transition will continue to materially impact the outlook for global economic demand.

    • Northern Trust

      Investment grade fixed income is our largest underweight. Barring a significant economic downturn, the magnitude of any longer term rate decline should be limited and potentially more constructive for risk asset returns. We prefer credit over term (interest rate) risk, especially as rate volatility remains high.

    • Northern Trust

      We see upside to commodities given under-investment creating supply/demand imbalances, as well as increased demand from a China reopening and ongoing Russia disruption. Natural resources companies show much improved fundamentals to help better weather economic headwinds, while cheap valuations already reflect at least a portion of these economic drags.

    • Nuveen

      We’re particularly favorable toward investment grade corporates and see opportunities in the higher quality segments of the high yield market. In contrast, we remain cautious toward emerging markets debt given the likely continued strength of the US dollar and slower global growth.

    • Pictet Asset Management

      Dollar weakness. Slower growth. A big drop in inflation. Muted equities. Bullish bonds. And a China rebound. All of this spells out the need for investors to remain cautious on risk assets – particularly through the first half of the year.

    • Pictet Asset Management

      We forecast global growth to slow to 1.7% in 2023, with stagnation in most developed economies and outright recession in Europe. China’s economy, on the other hand, is likely to re-accelerate as the government relaxes its zero-Covid policy. Overall, growth is likely to pick up again following the first quarter.

    • Pictet Asset Management

      We see the return to global equities limited to some 5% for the coming year, barely above the 3% we forecast for global government bonds. US equities are set to show the best performance. This is thanks to relatively attractive valuations, resilient domestic growth and the fact that the Fed is set to be the first of its peers to reach the end of its hiking cycle.

    • Pictet Asset Management

      The dollar is likely to edge back from its multi-decade highs. This should help support emerging markets equities, as should a widening growth differential between emerging and developing economies.

    • Pimco

      As we navigate a period of elevated inflation and an economic slowdown, our starting point is one of caution. Pimco’s business cycle models forecast a recession across Europe, the UK, and the US in the next year, and the major central banks are pressing ahead with policy tightening despite increasing strain in financial markets.

    • Pimco

      The economy in developed markets is under growing pressure as monetary policy works with a lag, and we expect this will translate into pressure on corporate profits. We therefore maintain an underweight in equity positioning, disfavor cyclical sectors, and prefer quality across our asset allocation portfolios.

    • Pimco

      Our base case of an economic slowdown or recession would bring demand destruction and ease inflationary pressures, which also implies that the US Fed funds rate may peak in early 2023.

    • Pimco

      We believe corporate earnings estimates globally remain too high and will have to be revised downward as companies increasingly acknowledge deteriorating fundamentals. Only when rates stabilize and earnings gain ground would we consider positioning for an early cycle environment across asset classes, which would likely include increasing allocations to risk assets. High yield credit and equities generally only rally late in a recession and early in an expansion.

    • Principal Asset Management

      A full China reopening will not happen overnight. Yet a roadmap for an end to China’s stringent Covid measures, coupled with additional stimulus policies, should provide the catalyst for a strong rebound in Chinese economic activity and risk assets in 2023. Global commodity prices also stand to benefit from this development.

    • Robeco

      We think that the belief in central bankers’ ability to prevent cyclical downturn is flawed. Instead, we expect a hard landing. Risks are tilted to the downside for the 2023 consensus of US annual real GDP growth of 0.8%. As recessions tend to be highly disinflationary, we believe this will take the sting out of inflation.

    • Robeco

      For the euro zone, the consensus of 0.4% real GDP growth in 2023 is fairly consistent with leading indicators like decelerating broad money growth in the region. But we flag the risk of excess tightening by the ECB, especially to get imported inflation under control.

    • Robeco

      While the dollar bull market could prove to be more persistent as the Fed shows reluctance to pivot and as potential liquidity events trigger safe-haven flows towards the US, the dollar bull run will likely peak in 2023. This will be on the back of declining rate differentials between the US and the rest of the world, and a peak in US growth versus the rest of the world.

    • Schroders

      Supported by liquidity and growth, Hong Kong and mainland Chinese equities stand a good chance of outperforming its peers, especially emerging markets.

    • Schroders

      Global central banks are likely to press ahead with more rate hikes before a pivot, weighing onto economic growth prospects. We see market expectations of a peak in US interest rates at close to 5% as being appropriate, after which the pace of hikes will likely slow.

    • T. Rowe Price

      Stocks remain vulnerable amid tightening liquidity, slowing growth, and higher rates. However, these headwinds should peak and subsequently ease in the latter half of 2023, which may provide an opportunity to add to equity exposures.

    • T. Rowe Price

      The balance between central bank tightening, high inflation, and slowing growth could produce rate volatility. Higher yields, especially for high yield bonds, are supported by strong fundamentals and can help provide a buffer against credit weakness.

    • T. Rowe Price

      US equities remain expensive on a relative basis. However, the US economy appears to be on a stronger footing than the rest of the world, and its less cyclical nature could provide support as global growth weakens.

    • T. Rowe Price

      A slowdown in the pace of Fed rate hikes should narrow rate differentials, softening dollar strength. Given the level of overvaluation, economic surprises — such as a sooner‑than‑expected Fed pivot — easily could push the US currency lower in 2023.

    • T. Rowe Price

      US investment grade yields could peak in the first half of 2023 as inflation cools, allowing the Fed to moderate policy. Slowing growth and inflation could support longer‑duration bonds. Credit may prove resilient thanks to strong fundamentals.

    • TD Securities

      Dollar outlook hinges on the intersection of global growth, terminal rate pricing, and terms of trade. While peak dollar is here, global growth isn’t strong enough to warrant a reversal yet. Expect consolidation in the first quarter and a deeper correction afterwards.

    • TD Securities

      Weaker growth and higher policy rates for most emerging-market economies. Valuations and positioning suggest some value for EM investors, but worsening external metrics increase vulnerability.

    • Truist Wealth

      We expect next year will be the worst year for global growth since the 1980s, aside from the global financial crisis and Covid years. Many countries are set to experience recessionary pressures as the supersized rate hikes of the past year start to take stronger hold.

    • Truist Wealth

      Our base case calls for a US recession in 2023, even though economic growth in the US is expected to remain stronger relative to global peers. Europe is likely to see the deepest recession, with countries closer to Ukraine and Russia being hit especially hard.

    • Truist Wealth

      We estimate inflation will trend towards 3%-4%, as measured by the Consumer Price Index. A slowing economy should result in easing inflation, albeit remaining above the pre-pandemic range.

    • Truist Wealth

      Within equities, we retain a US bias. Overseas markets remain cheap on a relative basis, but valuation is a condition not a catalyst. Given the weak global economic backdrop we expect next year, the US economy should remain a relative outperformer, and while the upward momentum in the US dollar is likely to slow, it should remain relatively strong.

    • Truist Wealth

      We recommend patience within emerging-market sectors to start the year. EM spreads remain susceptible to further widening (i.e. underperformance) given the deterioration expected in global economic activity. EM corporate and sovereign bond spreads above 400 basis points (4%) would offer an improved risk-reward balance.

    • Truist Wealth

      In the coming year, we expect inflation fears to evolve into growth concerns, particularly in Europe. The European Central Bank will likely be less aggressive in their policy response given Europe’s challenging macro backdrop. This would cap upward moves in euro zone yields. As a result, strong foreign demand for the relative yield advantage and safe-haven quality offered by US government debt should apply some downward pressure on US yields.

    • UBS

      We forecast a historically weak outlook: global growth of just 2.1% year-on-year in 2023 would be the lowest since 1993 excluding the pandemic and GFC. With 13 out of 32 economies expected to contract for at least two quarters by end 2023, our forecast approaches something akin to a “global recession.”

    • UBS

      For the US, we now expect near zero growth in both 2023 and 2024 (roughly 1 percentage point below consensus), and a recession to start in 2023. Combined with inflation falling rapidly (50 basis points below consensus), the Fed would cut the Federal Funds rate down to 1.25% by early 2024. The speed of that pivot will drive every asset class next year.

    • UBS

      Stocks are pricing in only 41% and 80% probabilities of a recession in the US and Europe, respectively. Weak growth and earnings drag the market lower before a fall in rates helps it bottom at 3,200 in the second quarter and lifts it to 3,900 by the end of 2023. With revenues and margins under greater pressure, Eurostoxx is likely to do worse, bottoming in the second quarter at 330 & ending 2023 at 385. As a part of our top trades we lay out stock lists of disinflation beneficiaries. Quality and Growth are likely to perform better than Value.

    • UBS

      As US carry advantage and rates volatility fade more rapidly than in a typical recession, we expect the dollar to slowly fall against G-10 currencies. Its fall should be limited, however, by weak global growth, a key driver for the dollar. We prefer AUD and NZD over CAD, and NOK over SEK. We see Asia in particular under pressure in the first half amid a weak trade backdrop, low carry and a need to rebuild depleted FX reserves.

    • UBS

      The economic weakness we forecast is widespread but it is not deep. It would be enough, however, to push unemployment 100 basis points higher in DM, and 200 basis points in the US (to 5.5%). Combined with inflation coming down rapidly in the coming quarters, that creates a much stronger central bank pivot than is priced by the market: about 200 basis points in DM cuts by mid-2024 (and nearly 400 basis points in the US).

    • UBS

      If inflation is meaningfully higher (100 basis points) than our forecast, global growth would be 50-70 basis points lower and policy rates 100 basis points higher (160 basis points in DM). A global housing downturn does more damage (110 basis points additional downside to growth). Rapid de-escalation of the Russia/Ukraine war would add about 0.5 percentage points to our global growth forecast.

    • UBS

      Against long-term average global growth of 3.5%, the common signal across assets is pricing in 3% global growth. That’s sub-trend but not recessionary. High-yield credit is most optimistic, equities less so. But a deep dive within equities shows that even they are not priced for a recession yet. US equities are pricing in only a 41% probability of recession, compared to 80% in Europe (which is already in recession) and 64% for China. The decline in stocks thus far can be fully explained by the rise in real rates and widening of spreads. The growth downturn is yet to be priced. The lows are not in yet.

    • UBS Asset Management

      While a recession is a very real possibility, investors may be surprised by the resilience of the global economy – even with such a sharp tightening in financial conditions. The labor market will certainly cool, but healthy household balance sheets should continue to support spending in the services sector. Moreover, some of the major drags on the world economy emanating from Europe and China are poised to get better, not worse, between now and the end of the first quarter of 2023.

    • UBS Asset Management

      In our view, it is too early to pre-position for very negative economic outcomes. A longer-lasting late cycle environment can persist for some time, and investors will have to be flexible and discerning in 2023 given these potential dynamics.

    • UBS Asset Management

      The US economy (and earnings) probably don’t fall off as sharply as many are projecting, and, however, also the Fed will need to keep rates higher for longer.

    • UBS Asset Management

      Our confidence that the bottom is in for China is fortified since these adjustments to Covid-19 policy are taking place in tandem with the most comprehensive support for the property sector to date. A rebounding China may provide a needed boost as developed economies slow, but will also likely lead to higher commodity prices. This too may make it difficult for the Fed and other central banks to back off too quickly.

    • UBS Asset Management

      Going into 2023, we expect global equities at an index level to remain range-bound. They will likely be capped to the upside by the Fed’s desire to keep financial conditions from easing too much. However, we expect some cushion on the downside from a resilient economy and rebounding China.

    • UBS Asset Management

      Financials and energy are our preferred sectors. This is because we believe cyclically-oriented positions should perform if what appears to be overstated pessimism on global growth fades in the face of resilient economic data. Activity surprising to the upside and a higher-for-longer rate outlook should benefit value stocks relative to growth, in our view – particularly as profit estimates for inexpensive companies are holding up well relative to their pricier peers.

    • UBS Asset Management

      China’s reopening should fuel a pick-up in domestic oil demand, offsetting some of the downward pressure on inflation from goods prices.

    • UBS Asset Management

      In US and European credit,, investment grade bond yields look increasingly attractive as a balance between a potentially resilient economy and more range-bound government bond yields.

    • UBS Asset Management

      We see commodities as attractive both on an outright basis and for the hedging role they serve in multi-asset portfolios. Already low inventories can continue to shrink in an environment of slowing growth so long as supply remains constrained – as is the case across most key commodity markets.

    • UBS Asset Management

      In currencies, we believe we have moved from a strong, trending US dollar to more of a rangebound trade in USD. Our catalysts for a broad turn in the dollar are for the Fed to stop hiking interest rates, China’s zero-Covid-19 policy to end, and energy pressures in Europe stemming from Russia’s invasion of Ukraine to subside. None of these have fully happened yet, but all three appear to be getting closer. A more rangebound dollar coupled with a global economy that is still growing, but slowing, could provide a very positive backdrop for high carry, commodity-linked currencies. We prefer the Brazilian real and Mexican peso.

    • UniCredit

      We forecast a mild technical recession in both the US and the euro zone, followed by a below-trend recovery. The risks to growth are skewed to the downside, including from negative geopolitical developments, greater persistence in wage and price setting, and financial stability risks.

    • UniCredit

      We forecast global GDP growth of 1.9% next year – a de facto global recession – followed by a weak recovery in 2024 of 2.6%.

    • UniCredit

      The ongoing sharp monetary tightening and upcoming recession pose significant downside risks. However, evidence of slowing core inflation, peaking official rates and signs of economic recovery would pave the way for more risk taking in the second half.

    • Vanguard

      Growth is likely to end 2023 flat or slightly negative in most major economies outside of China. Unemployment is likely to rise over the year but nowhere near as high as during the 2008 and 2020 downturns. Through job losses and slowing consumer demand, a downtrend in inflation is likely to persist through 2023.

    • Vanguard

      Within the US market, value stocks are fairly valued relative to growth, and small-capitalization stocks are attractive despite our expectations for weaker near-term growth.

    • Wells Fargo

      G10 central banks followed the same playbook for most of 2022. This already has begun to change, and differences should be quite pronounced by mid-2023. The Fed hikes through mid-2023, then sits for quite a while unless the US economy rolls over. Fragile housing markets in countries such as Canada, Australia, and Sweden cause their central banks to end tightening early in 2023, and contemplate easing somewhat soon.

    • Wells Fargo

      Relative growth outlook supports dollar gains. Growth expectations for 2022/23 have mostly moved against the dollar this year. Wells Fargo Economics is much further below consensus on growth in the UK and euro zone than the US. China reopening is a key risk to our view.

    • Wells Fargo

      The ECB and BOE have already shown more concern for slowing growth vs. high inflation, and seem more inclined to pivot away from inflation fighting in a stagflation scenario. In contrast, the Fed’s bar for pivoting seems higher. Private debt has been more contained in the US relative to its peers, but debt has still risen sharply over the last few decades.

    • Wells Fargo Investment Institute

      We expect a U.S. recession in the first half of 2023, as well as a continued global economic slowdown, as last year’s hawkish monetary policy and money growth slowdown works with a lag. That should drive down corporate earnings growth and create important inflection points for investors over the next nine to 12 months.

    • Wells Fargo Investment Institute

      Wells Fargo Investment Institute expects a recession in early 2023, recovery by midyear, and a rebound that gains strength into year-end. Nevertheless, full-year US economic growth and inflation targets may reflect mostly the recession.

    • Wells Fargo Investment Institute

      Wells Fargo Investment Institute expects a recession in early 2023, recovery by midyear, and a rebound that gains strength into year-end. Nevertheless, full-year US economic growth and inflation targets may reflect mostly the recession.

    • Wells Fargo Investment Institute

      We favor US large-cap and US mid-cap equities over international equities and remain tilted toward quality and defensive sectors. Our positioning will likely shift to more cyclical in 2023 as we anticipate the eventual recovery.

    • Wells Fargo Investment Institute

      Long-term yields tend to peak before the Fed finishes raising rates. We favor remaining nimble in bond portfolio allocations with a barbell strategy that lengthens maturities but also takes advantage of ultra-short term yields. An eventual economic recovery in the latter half of the year should begin to support credit-oriented asset classes and sectors.

  3. RECESSION
    • Amundi Asset Management

      In Europe, the energy shock, compounded by inflationary pressures related to the aftermath of the Covid crisis, remains the main dampener on growth. The ensuing cost-of-living crisis will drag Europe into recession this winter before a slow recovery. But that doesn’t mean inflation will abate.

    • Amundi Asset Management

      In the US, the Fed’s aggressive tightening has increased the risk of recession in the second half, while again failing to dent inflation.

    • Amundi Asset Management

      Inflation will stay stubbornly high through most of 2023. Central banks will continue their “whatever it takes” policy to avoid a 1970-style crisis. Tightening has further to go, but at a slower pace than in 2022. The level of the Fed terminal rate will be critical, raising the odds of a US recession if it ends up close to 6%.

    • Amundi Asset Management

      Given decelerating global growth and a profit recession in the first half of 2023, investors should remain defensive for now with gold and investment-grade credit the favored asset classes. However, they should be ready to adjust through the year to exploit market opportunities that will emerge, as valuations get more attractive. Headwinds should subside in the second half of 2023.

    • Amundi Asset Management

      As bonds regain diversification qualities after the surge in yields in 2022 and looming recession risks next year, a revival of the 60-40 portfolio allocation is in sight.

    • AXA Investment Managers

      A policy-induced recession looks like the price to pay to get inflation back under control after a peak in late 2022. While we are confident that by the middle of 2023 the world economy will start improving again, we would warn against any excessive enthusiasm. Beyond the cyclical recovery, many structural questions will remain unanswered.

    • AXA Investment Managers

      We expect inflation to fall back towards target over the coming two years as global growth slows, with recessions forecast in both Europe and the US.

    • AXA Investment Managers

      The Fed won’t want to cut rates as quickly as the market is currently pricing (second half of 2023) since they will want to be satisfied that they have properly broken the back of inflation. The price to pay for this will be a recession in the first three quarters of 2023 in the US which will trigger the usual adverse ripple effects over the entirety of the world economy next year. Any recession looks set to be mild, though our US GDP outlook of -0.2% and 0.9% for 2023 and 2024 is lower than consensus. Interest rates appear close to a peak – we estimate 5% – and are likely to remain at that level until 2024.

    • AXA Investment Managers

      We expect euro zone GDP to contract by 1% between the fourth quarter of 2022 and the first quarter of 2023, followed by a weak recovery. We expect the UK economy to enter recession this year and forecast GDP growth to average 4.3% in 2022, -0.7% in 2023 and 0.8% in 2024.

    • AXA Investment Managers

      Even after the significant de-rating already seen, stock markets are still vulnerable to the expected earnings recession.

    • AXA Investment Managers

      Domestic and external headwinds will trigger a marked slowdown in emerging markets, with Chile and Central European countries in recession. Recovery should start in the second half of 2023.

    • Bank of America

      Going into 2023, one expected shock remains: recession. The US, euro area and UK are all expected to see recessions next year, and the rest of the world should continue to weaken, with China a notable exception. The recession shock likely means corporate earnings and economic growth will come under pressure in the first half of the year, while at the same time, China’s reopening offers a reprieve for certain assets.

    • Bank of America

      A recession is all but inevitable in the US, euro area and UK. Expect a mild US recession in the first half of 2023 with a risk that it starts later. Europe likely sees recession this winter with a shallow recovery thereafter as real incomes and likely overtightening pressure demand.

    • Bank of America

      After a historically bad year for industrial metals in 2022, cyclical and secular drivers are expected to boost metals in 2023, and copper rallies approximately 20%. Recessions in key markets are a headwind but China’s reopening, a peaking dollar and especially an acceleration of renewables investment should more than offset these negative factors for copper.

    • Bank of America

      A strong labor market, ESG, US/China decoupling, and deglobalization/reshoring are expected to keep certain areas of capex strong, even in the event of a recession.

    • Bank of America

      The end of Fed hikes and more conservative corporate balance sheet management lead to a positive backdrop for credit: Weaker prospects for growth and higher rates lead managements to shift prioritization to debt reduction from share buybacks and capex. Total returns of approximately 9% are expected in investment grade credit in 2023 in addition to a default rate peak of 5%, far below past recessions.

    • Barclays

      This year’s aggressive rate hikes should hit the world economy mainly in 2023. We expect advanced economies to slip into recession, and we forecast global growth at just 1.7%, one of the weakest years for the world economy in 40 years. We recommend bonds over stocks, as well as a healthy allocation to cash.

    • Barclays

      The global economy looks set to enter a stagflationary phase: as Europe and the US contract, growth remains sluggish in China, but inflation fades only gradually. Bringing inflation back to target, while output sinks and employment rises, will test central banks’ resolve.

    • BCA Research

      Relative to subdued expectations, growth will surprise to the upside in 2023, as the US averts a recession, Europe experiences a robust recovery following the energy crisis, and China dismantles its zero-Covid policies. Growth will weaken towards the end of 2023, with a mild recession probable in 2024

    • BCA Research

      We would not rule out a US recession over the next 24 months. However, if a recession does occur, it will probably not start until 2024. More importantly, any US recession is likely to be a mild one – so mild, in fact, that it may end up being almost indistinguishable from a soft landing.

    • BCA Research

      The conventional wisdom sees stocks falling in the first six months of 2023 in anticipation of a US recession and then recovering in the back half of the year once the first green shoots appear. We think the exact opposite will happen: Stocks will rise in the first half of 2023 as hopes of a soft landing intensify, and then dip in the second half. Favor non-US stocks in 2023, especially emerging markets. Small caps will outperform large caps.

    • BCA Research

      Global bond yields will move sideways in the first half of next year, as the impact of falling inflation broadly offsets the impact of better-than-expected growth data. Yields should drop modestly in the second half of the year as the US economy edges closer to recession.

    • BlackRock Investment Institute

      The new regime of greater macro and market volatility is playing out. A recession is foretold; central banks are on course to overtighten policy as they seek to tame inflation. This keeps us tactically underweight developed market equities. We expect to turn more positive on risk assets at some point in 2023 – but we are not there yet. And when we get there, we don’t see the sustained bull markets of the past.

    • BlackRock Investment Institute

      Equity valuations don’t yet reflect the damage ahead, in our view. We will turn positive on equities when we think the damage is priced or our view of market risk sentiment changes. Yet we won’t see this as a prelude to another decade-long bull market in stocks and bonds.

    • BlackRock Investment Institute

      The case for investment-grade credit has brightened, in our view, and we raise our overweight tactically and strategically. We think it can hold up in a recession, with companies having fortified their balance sheets by refinancing debt at lower yields.

    • BNP Paribas

      We expect a downturn in global GDP growth in 2023, led by recessions in both the US and the euro zone, with below-trend growth in China and many emerging markets.

    • BNP Paribas

      Despite a likely steep fall in inflation next year, stubborn price pressures look set to keep the US Federal Reserve and the European Central Bank hiking into a recession in the first quarter of 2023.

    • BNP Paribas

      We see the first quarter of 2023 as a turning point for US and euro zone government bond markets due to peaks in both central-bank policy rates and net supply net of QE/QT. In terms of fundamentals, the global growth downturn and disinflation point to lower yields throughout 2023.

    • BNP Paribas

      We see a transition from “rates risk” to “ratings risk” in 2023, with weaker fundamentals not yet in the price. US investment grade spreads will peak at 200 basis points, we expect, fully discounting a recession.

    • BNY Mellon Investment Management

      With Europe and the UK in or approaching recession, China slowing sharply and the US “needing” one to bring inflation back to target, it is our belief that “Global Recession” remains our single most likely scenario – we give it a 60% probability.

    • BNY Mellon Investment Management

      Output is likely to fall in 2023, with risks to the downside. Inflation will probably fall too, but relatively slowly, remaining above target for some time, with risks to the upside. As a result, despite recession, interest rates are set to rise further, though with risks to the downside. All this stands in stark contrast to the “soft landing” narrative.

    • BNY Mellon Investment Management

      Is it time to call the bottom and go overweight equities? According to our outlook – no. There’s a stronger case for increasing allocations to fixed income, which does well in a couple of diametrically opposed circumstances: first, if there’s a soft landing and rates don’t have to rise nearly as much as markets currently expect. Or second, if rates do rise and the economy goes into recession, curves invert further and eventually fall.

    • BNY Mellon Investment Management

      Bonds have an edge over equities in the near-term due to their downside mitigation during growth slowdowns, while equities may outperform strongly in the latter part of 2023 and into 2024 if/and when economies rebound on the other side of recession.

    • BNY Mellon Investment Management

      Higher for longer rates – with divergence favoring the dollar – tightens global financial conditions and sets off a global recession, denting corporate earnings and risk assets through the first half of 2023.

    • Brandywine Global Investment Management

      The most intense period of economic softness is likely to be in the first half of 2023, based on the weight of leading indicators. However, there are a range of factors that could limit downside recessionary forces, including: the recent plunge in energy prices, the rebound in the US auto sector, and what could turn out to be a rapid decline in inflation. The conditions for a credit crunch, commonly seen ahead of other US recessions, do not exist currently.

    • Brandywine Global Investment Management

      Recession odds increase significantly if Fed Chair Powell remains dogmatic on the need to create labor market slack. However, he has proven himself impressionable when it comes to the data. A pause in rate hikes seems very probable, especially if the data show a steep and deep decline in inflation.

    • Brandywine Global Investment Management

      Outside of the US, the global economy is already in recession due to the effects of the strong dollar and a very weak China. China has started to back away, slowly, from the policies that have been depressing activity. If the dollar corrects lower as the US economy decelerates and inflation retreats, and the US avoids a bust, the world economy could be stabilizing by this time next year.

    • Brandywine Global Investment Management

      In addition to the favorable technical developments for bonds in 2023, two potential disinflationary outcomes for the global economy also support fixed income, particularly if an investor’s time horizon is the entire year. We expect a job-killing recession is necessary to break inflation and get it close to central banks’ 2% target. That means there will be meaningful weakness in the labor market globally. Under this type of disinflationary bust, a typical recession, higher-quality sovereign bonds are the best returners.

    • Carmignac

      2023 will be a year of global recession, but investment opportunities will arise from the continued desynchronization between the three largest economic blocs – the US, the euro area and China.

    • Carmignac

      We expect the US economy to enter a recession later this year but with a much sharper and longer decline in activity than anticipated by the consensus. Faced with inflation, the Fed will have to create the conditions for a real recession with an unemployment rate well above 5%, compared with 3.5% today, which is not currently envisaged by the consensus

    • Carmignac

      In Europe, high energy costs are expected to affect corporate margins and household purchasing power, and thus trigger a recession over this quarter and next. The recession should be mild as high gas storages should prevent energy shortages. However, economic recovery from the second quarter onward is expected to be lackluster, with businesses reluctant to hire and invest due to continued uncertainty over energy supplies and financing costs.

    • Carmignac

      The typical recession playbook calls for a portfolio leaning towards defensive bias, on the fixed income front favoring long term bonds issued by well-rated issuers, on equities those companies and sectors providing for the greatest resilience, and on foreign-exchange markets currencies which tend to benefit from a safe-haven status.

    • Carmignac

      In equity markets, while the drop in valuations appear broadly consistent with a recessionary backdrop, there are wide disparities between regions – even more so on earnings. The eyes of global investors are focused on Western inflation and growth dynamics. Looking towards the East should prove salutary and offer most welcomed diversification.

    • Carmignac

      Unlike the bond market, equity prices do not incorporate the scenario of a severe recession, so investors need to be cautious. Japanese equities could benefit from the renewed competitiveness of the economy, boosted by the fall of the yen against the dollar. China will be one of the few areas where economic growth in 2023 will be better than in 2022.

    • Citi

      We are currently at a spot in the US business cycle where fears of inflation and the Fed are fading, but fears of a recession are not yet pronounced enough to lead to downside in equity markets. As we enter 2023, we expect US recession fears to become the driver. We remain underweight assets that are likely to underperform into a US recession.

    • Citi

      We think that the Fed will keep going, even if at a shallower pace, which in the end means that the peak in US rates may only come in early 2023, rather than being already in. We also think that recession fears should eventually undermine risky assets again, especially in the US.

    • Citi

      Global growth is expected to slow to below 2% in 2023 — excluding China, global growth is likely to run at less than a 1% pace, near some definitions of global recession. Inflation next year is likely to gradually decline but remain high on average.

    • Citi

      We reduce our negative credit views, by taking European credit back to flat, on the view that the bottom in the ZEW may be in, which has historically been a positive factor. It is hard to see how shocks in 2023 will be even worse for Europe than what we saw 2022. But given the US recession view we stick to underweights in both US investment grade and high yield.

    • Citi

      Short copper has been our recession trade in commodities. While the Chinese reopening is a risk to the trade, our metals strategist thinks that copper is unlikely to benefit enough, given that Chinese housing may stop falling, but will not rebound much, and given the US recession. We therefore stay negative. We stay neutral in energy and gold.

    • Citi Global Wealth Investments

      We believe that the Fed’s rate hikes and shrinking bond portfolio have been stringent enough to cause an economic contraction within 2023. And if the Fed does not pause rate hikes until it sees the contraction, a deeper recession may ensue.

    • Citi Global Wealth Investments

      We need to get through a recession in the US that has not started yet. We believe that the Fed’s current and expected tightening will reduce nominal spending growth by more than half, raise US unemployment above 5% and cause a 10% decline in corporate earnings. The Fed will likely reduce the demand for labor sufficiently to slow services inflation just as high inventories are already curtailing goods inflation.

    • Citi Global Wealth Investments

      We need to get through a deeper recession in Europe as it struggles through a winter of energy scarcity and inflation. We also need to see a sustained economic recovery in China, whose prior regulatory policies and current Covid policies curtail domestic growth.

    • Citi Global Wealth Investments

      Ahead of the expected recession, we are committed to selectivity and quality. This begins with fixed income, which we believe offers genuine portfolio value now for the first time in several years. Short-duration US Treasuries present a compelling alternative to holding cash. For US investors, municipal bonds also seek better risk-adjusted after-tax returns.

    • Columbia Threadneedle

      While economic growth is slowing, at this point it doesn’t look like a recession in the US will be very deep. In contrast, economies in Europe are under significant stress and a deeper recession there seems likely.

    • Comerica Wealth Management

      In 2023, we envision an environment of moderating but persistent price pressures that will keep monetary policymakers on a steady, but less aggressive, tightening path. Our base case calls for mild recession early in the year and steady market interest rates.

    • Comerica Wealth Management

      Should global conditions worsen and a deeper recession, or hard landing ensues it’s conceivable that S&P 500 profits decline to the $200 range in 2023. In this scenario, we do not expect technical support to hold at 3,500 for the S&P 500. Instead, we view a more typical recession-like P/E multiple of 15x to result, therefore taking the Index down to the 3,000 range.

    • Comerica Wealth Management

      Given our base case, the mild-recession scenario, as well as the possibility for a hard landing scenario, it is important for investors to remain cautious and not get too aggressive during bear market rallies. We anticipate heightened market volatility in the months and quarters ahead until the market gets comfortable with the potential for peaks in market interest rates, the dollar, and monetary policy along with troughs in GDP, P/Es, and EPS.

    • Commonwealth Financial Network

      Our outlook for 2023 remains uncertain and will hinge on whether the Fed is able to rein in inflation while keeping us out of recession. But because the labor market continues to show strength, lending support to the consumer sector—the largest part of the economy—we are cautiously optimistic that the economy and markets will move in a positive direction in the new year, though there may be some bumps along the way.

    • Commonwealth Financial Network

      We believe inflation is set to fall meaningfully throughout the coming year as the economy slows due to the Fed’s aggressive interest rate hikes. We’ve already seen positive signs that drivers of inflation in key economic sectors have improved or rolled over. If that continues, without kicking off a recession, the Fed just may achieve its elusive soft landing.

    • Credit Suisse

      We expect the euro zone and UK to have slipped into recession, while China is in a growth recession. These economies should bottom out by mid-2023 and begin a weak, tentative recovery – a scenario that rests on the crucial assumption that the US manages to avoid a recession. Economic growth will generally remain low in 2023 against the backdrop of tight monetary conditions and the ongoing reset of geopolitics.

    • Credit Suisse

      The dollar looks set to remain supported going into 2023 thanks to a hawkish US Federal Reserve and increased fears of a global recession. It should stabilize eventually and later weaken once US monetary policy becomes less aggressive and growth risks abroad stabilize. We expect emerging market currencies to remain weak in general.

    • Deutsche Bank

      The recession we have now been anticipating for nine months draws nearer. A downturn may already be under way in Germany and the euro area overall thanks to the energy shock stemming from the Russia-Ukraine war. Our expectation for a recession in the US by mid-2023 has strengthened on the back of developments since early last spring.

    • Deutsche Bank

      We read the Fed and ECB as being absolutely committed to bringing inflation back to desired levels within the next several years. Although the costs in doing so may be lower than in the past, it will not be possible to do so without at least moderate economic downturns in the US and Europe, and significant increases in unemployment.

    • Deutsche Bank

      Overall, we see output declining 1% in the euro area and 2% in the US during the year ahead. World growth slows to around 2% in this forecast, a rate that has historically been labeled recessionary.

    • Deutsche Bank

      Equity markets are projected to move higher in the near term, plunge as the US recession hits and then recover fairly quickly. We see the S&P 500 at 4,500 in the first half, down more than 25% in the third quarter, and back to 4,500 by year end 2023.

    • Deutsche Bank

      The 10-year Treasury yield is projected to remain in its recent range in the months to come, and then rally moderately around midyear as the US downturn approaches. The German Bund yield should rise to 2.60% by the second quarter before remaining relatively stable in comparison to Treasury yields.

    • Deutsche Bank

      Corporate credit spreads should widen significantly through the year, especially around midyear as it become clear the US recession is under way.

    • Deutsche Bank

      We expect the dollar to move sideways against the euro and then to weaken significantly as the recession hits and risk premia favoring the dollar begin to diminish.

    • Deutsche Bank

      Supply constraints will keep oil prices elevated in the neighborhood of $100 per barrel until demand softens with the US downturn; then see these prices declining $20 by year end.

    • Deutsche Bank

      The current mix of aggressive central bank rate hiking to deal with elevated inflation, geopolitical uncertainty and elevated commodity prices, and impending recession in the euro area and US has been a toxic mix for emerging markets. We see this sector remaining under pressure well into 2023, but then beginning to trend more positive later in the year as inflation begins to recede and central bank policy begins to reverse both domestically and by the Fed.

    • Deutsche Bank

      We see the risks still weighted toward more severe recessions being needed to get the disinflation job done successfully, and we assume the Fed and ECB will be up to the task if needed.

    • DWS

      The looming mild recession in the US and the euro zone will be very different from previous downturns. Thanks to the demographically driven labor market, which is robust even in a downturn, workers will keep their jobs – for the most part – household incomes will remain stable and consumers will continue to consume.

    • DWS

      On the corporate side, profits are likely to come under pressure, but much less so than in past recessions. In view of the higher interest rate level, bonds are significantly more attractive than in the past, as a yield generator and as a diversification instrument. In general, however, the return prospects of risk assets are limited, but high enough to be able to beat inflation.

    • DWS

      The yields of solid corporate bonds are even higher than the corresponding dividend yields. The outlook for this asset class – with a view to the next 12 months – is extremely positive, the risks manageable. The imminent recession is already priced into the interest rate premiums. The balance sheets of most companies are much more solid than they used to be in times of an economic downturn.

    • DWS

      On the credit side, there are currently no excessively high risks in sight. Senior bank bonds and hybrid corporate bonds with yields of 6% to 7% are particularly promising. Also interesting are the riskier euro high-yield bonds, which currently have yields of 7.3%. At 0.7%, default rates are at a historically very low level. They are likely to rise, but much less than in previous phases of an economic downturn.

    • Fidelity

      Markets want to believe that central banks will blink and change direction, negotiating the economy towards a soft landing. But in our view, a hard landing remains the most likely outcome in 2023. A recession is likely in the US and near certain in Europe and the UK.

    • Fidelity

      If the Fed continues to raise rates, an even stronger dollar could accelerate the onset of recession elsewhere. Conversely, a marked change in the dollar’s direction, potentially as its relative strength and confidence in monetary and fiscal policy making become an issue, could bring broad relief, and increase overall liquidity across challenged economies.

    • Fidelity

      We have repeatedly argued that the financial system cannot take positive real rates for any material length of time (due to high levels of debt) before financial stability becomes an issue. Given liquidity and assets are already under considerable pressure, the system could start to crack. There is a risk that if the Fed stays true to its current word and doesn’t stop until inflation is back near 2%, a “standard” recession could turn into something worse.

    • Fidelity

      Were the US to head into recession next year, credit defaults would rise significantly. So far, the market is yet to reflect these risks, notably in high yield credit. Prudent credit selection within high yield is therefore essential.

    • Fidelity

      The private credit markets could prove a defensive option as economies brace for recession in 2023, due to their structural features and the relative strength of the asset class.

    • Franklin Templeton

      Our base case is inflation will further recede as supply chain pressures ease and central banks will remain committed to tighter policy. However, the result of this policy is likely to be a slowing of the economy.

    • Franklin Templeton

      Europe is likely already in a recession and the US is likely to fall into one — hopefully a mild one. Risk/reward profiles seem to favor fixed income over global equities, particularly for the first half of 2023.

    • Franklin Templeton

      Recession and subsequent recovery may well be rapid and create market volatility. We believe it will be as important as ever to be diversified and actively select investments, particularly when tilting toward risk assets.

    • Generali Investments

      The start of 2023 is dominated by a global – if desynchronized – economic slowdown (cold) but still elevated inflation (hot). Our core scenario sees a mild euro-area recession, and an even milder US one. Risks are skewed to the downside: such brutal tightening of monetary policy and financial conditions rarely leaves the economy and markets unscathed.

    • Generali Investments

      We forecast a drop in global growth from 3.2% in 2022 to 2.1% in 2023. We expect barely positive US growth (0.3%), with even a mild contraction over the central quarters of 2023. We expect core CPI inflation to end 2023 slightly above 3% year-on-year. Europe is likely entering recession at the turn of the year, while the Covid policy relaxation in China, along with a better credit impulse, will support a mild recovery.

    • Generali Investments

      We stay defensive on high yield, as defaults are starting to pick up and spreads seem to be mispricing the developing recession pressures.

    • Generali Investments

      For now, we recommend a small underweight in equities (and high-yield), which we stand ready to increase once the current rebound wanes. Further into 2023, a more risk-prone stance may become suitable once the Fed starts to envisage first rate cuts and recession risks are adequately priced.

    • Generali Investments

      The fundamentally overvalued dollar is past peak. The Fed’s final hike looming for early spring 2023 is set to reduce rates uncertainty (a previous dollar boost) and path the way to narrowing yield gaps vs major peers. Initially, the transition is likely to prove volatile, though. The euro is still to feel the pain from recession and the energy crunch, leaving the currency shaky near term. But fading recession forces by early spring may mark the start of ensuing capital inflows to the euro area and a more sustained euro recovery.

    • Goldman Sachs

      We expect global growth of just 1.8% in 2023, as US resilience contrasts with a European recession and a bumpy reopening in China.

    • Goldman Sachs

      The US should narrowly avoid recession as core PCE inflation slows from 5% now to 3% in late 2023 with a 0.5 percentage point rise in the unemployment rate. To keep growth below potential amidst stronger real income growth, we now see the Fed hiking to a peak of 5-5.25%. We don’t expect cuts in 2023.

    • Goldman Sachs

      The euro area and the UK are probably in recession, mainly because of the real income hit from surging energy bills. But we expect only a mild downturn as Europe has already managed to cut Russian gas imports without crushing activity and is likely to benefit from the same post-pandemic improvements that are helping avoid US recession. Given reduced risks of a deep downturn and persistent inflation, we now expect hikes through May with a 3% ECB peak.

    • Goldman Sachs

      Investors aren’t getting much compensation for the risk of owning equities or high-yield credit in comparison to lower risk bonds. As a result, equities and high-yield debt are particularly exposed to an economic slowdown or recession.

    • HSBC

      We think markets have become too complacent both in regard to the inflation and Fed outlook and the growth outlook. Virtually all of our cyclical leading indicators are still pointing to much more weakness on the growth side in the coming two to three quarters. The point here is that these signals are no longer confined to just one particular area of the economy. The weakness is much more broad-based now, which gives us even higher conviction in our call. We remain decidedly risk-off for the first half of 2023.

    • HSBC

      Diversification benefits are very scarce in an environment that is driven so much by one single factor (inflation/the Fed). One of the only asset classes that has a high-enough loss threshold in both a recession and a sticky inflation/labor market scenario is probably investment-grade credit.

    • HSBC Asset Management

      Inflation should still be persistently high for much of 2023, and on the back of rapid tightening by the Federal Reserve we are forecasting a recession for the US in 2023 – a corporate profits recession in the first half of the year, followed by a GDP recession.

    • HSBC Asset Management

      Value still makes sense as rates continue to rise, although this needs to be balanced against a deteriorating macro outlook and lower commodity prices. The coming switch in the macro story from stagflation toward recession should favor defensive and quality factors.

    • Invesco

      A global recession remains a significant possibility, with the potential for higher unemployment, defaults, and a deterioration of earnings. However, we believe that risk is still below 50%, based on our expectation that central banks pause tightening soon.

    • Invesco

      Within fixed income, we are underweight risky credit as a contractionary regime has historically led to underperformance in high yield relative to higher-quality debt with similar duration.

    • JPMorgan

      The good news is that central banks will likely be forced to pivot and signal cutting interest rates sometime next year, which should result in a sustained recovery of asset prices and subsequently the economy by the end of 2023. The bad news is that in order for that pivot to happen, we will need to see a combination of more economic weakness, an increase in unemployment, market volatility, decline in levels of risky assets and a fall in inflation.

    • JPMorgan

      The global growth outlook remains depressed, but we do not see the global economy at imminent risk of sliding into recession, as the sharp decline in inflation helps promote growth, but a US recession is likely before the end of 2024.

    • JPMorgan

      The convergence between the US and international markets should continue next year, both on a dollar and local currency basis. The S&P 500 risk-reward relative to other regions remains unattractive. Continental European equities have a likely recession to negotiate and geopolitical tail risks, but the euro zone has never been this attractively priced versus the US. Japan should be relatively resilient due to solid corporate earnings from the economy’s reopening, attractive valuation and smaller inflation risk compared with other markets.

    • JPMorgan

      The growth profile will show divergence: the euro area will likely face a mild recession into late 2022/early 2023, while the US is expected to slide into recession in late 2023.

    • JPMorgan Asset Management

      Our core scenario sees developed economies falling into a mild recession in 2023.

    • JPMorgan Asset Management

      The potential for bonds to meaningfully support a portfolio in the most extreme negative scenarios – such as a much deeper recession than we envisage, or in the event of geopolitical tensions – is perhaps most important for multi-asset investors.

    • JPMorgan Asset Management

      Our 2023 base case of positive returns for developed market equities rests on a key view: a moderate recession has already largely been priced into many stocks.

    • Macquarie Asset Management

      The US will enter recessionary conditions in the first half following the UK and Europe; however, these recessions are likely to be over by mid-2023 and the developed world could see a synchronized recovery towards the end of the year.

    • Macquarie Asset Management

      For 2023, we are most positive on infrastructure, fixed income and agriculture. Listed equities and real estate face more headwinds in the near term, but there are still thematic opportunities in both asset classes and cyclical opportunities will present themselves as the downturns unfold and morph into recoveries.

    • Macquarie Asset Management

      Macquarie Asset Management remains cautious toward equities due to earnings risks and anticipates a decline in equity markets as the developed world endures recessionary conditions. The asset manager sees opportunities in playing key thematics, such as deglobalisation and onshoring, with construction and engineering firms, railroads, and consumer discretionary firms becoming the major beneficiaries.

    • Macquarie Asset Management

      Bond yields rose considerably in 2022, offering attractive valuations and strong protection levels for investors in investment grade, high yield markets, and developed world sovereigns. However, in Macquarie Asset Management’s view, a defensive position is warranted given the potential for recessions and inflation to undermine the strong start to 2023.

    • Macquarie Asset Management

      The impending macroeconomic landscape we have described justifies a significant reallocation into safe and high-quality assets, in our view, especially if the recessionary conditions turn out to be worse than anticipated. As such, the safe havens of cash and bonds are looking increasingly attractive.

    • Macquarie Asset Management

      Within credit, fundamentals remain strong in both investment grade and high yield markets. However, we are entering an uncertain macroeconomic environment with the impact from inflationary cost pressures and deteriorating growth likely to lead to weaker fundamentals. Against this backdrop, we believe defensive positioning within high-quality credit is appropriate.

    • Macquarie Asset Management

      We think it likely that both the UK (as of the third quarter 2022) and the euro area (starting fourth quarer 2022) are already in recession. For the US, we think recession risks are high enough for it to be considered our base case, although we don’t expect one to start until the first half of 2023. These recessions are likely to be relatively mild, however, with peak-to-trough falls in gross domestic product (GDP) ranging from -1.5% in the US to -2.5% in the UK.

    • Morgan Stanley

      Bonds — the biggest losers of 2022 — could be the biggest winners in 2023, as global macro trends temper inflation next year and central banks pause their rate hikes. This is particularly true for high-quality bonds, which historically have performed well after the Federal Reserve stops raising interest rates, even when a recession follows.

    • NatWest

      We forecast a marked slowdown in global economic growth in 2023: 1.2% from 3.7% in 2022. Our projections are below market consensus and official forecasts (the latter typically do not show recessions—yet). The advanced economies are expected to endure a year of slowdown in 2023 with outright recessions in the US and UK and stagnation in the euro area – while China experiences a mild form of “economic long covid.”

    • NatWest

      With the US expected to enter a recession starting in the first quarter and lasting through to the second, and with our expected terminal Fed funds rate of 5% well-priced, we look for yields to peak if they have not already—we see 10-year yields ending 2023 at 3.35%.

    • NatWest

      Europe is already in recession. Inflation will slow and the ECB will slow with it. But inflation risks are on the high side. A second phase of inflation, permitted by recovery in the second half, is more likely than a downturn that leads to rate cuts. Bearish risks to longer-term rates form a long list. We target 2.75% in 10-year bunds. This contrasts with our US rates views. Buy five-year Treasuries vs 10-year bunds – a hybrid steepener that captures the more advanced Fed and our global steepening bias.

    • NatWest

      We forecast a recession in the US, with GDP declining by 0.4% year-on-year in 2023. We suspect we should see a relatively mild downturn in the current setting (peak-to-trough -1%) followed by a comparatively modest recovery (we expect below-trend growth of roughly 1% later in the year).

    • Ned Davis Research

      We estimate 2.4% real global GDP growth in 2023 and assign a 65% chance of severe global recession. Recession in developed economies and a Chinese reopening present offsetting risks. Global inflation has peaked but will stay higher for longer.

    • Ned Davis Research

      Like the global economy, the risk of recession weighs on the outlook for US economic growth in 2023. We project real GDP growth will end the year in a range of -0.5% to 0.5%. We see a 75% chance that the economy contracts for part of 2023 and give 25% odds to a soft-landing scenario.

    • Ned Davis Research

      It’s highly likely that the European economy fell into recession in the fourth quarter of 2022 due to the energy shock brought by Russia’s war and tighter monetary policy. We forecast a 0% to 0.5% growth rate for the euro zone in 2023, as the recession continues into next year. We expect the recession to be mild. The outlook, however, is uncertain and is almost entirely driven by energy.

    • Northern Trust

      The firm expects growth to continue to be constrained globally, with some regions arguably already in recession and others on the precipice. It also believes that China’s pandemic-to-endemic transition will continue to materially impact the outlook for global economic demand.

    • Northern Trust

      We are neutral duration risk. In 2023 we expect Fed rate hikes to total 0.50% to 0.75%, to reach a steady policy rate of 5%, likely sufficiently high for a Fed pause. Treasury yields are likely move slightly higher but remain stable thereafter as we think labor market strength will make the Fed hesitant to reverse course. Non-US interest rates to hold steady or even decline on less inflation risk and higher recession risk than in the US.

    • Nuveen

      We’re growing a bit more wary toward credit risk as recession indicators rise, which could cause some spread widening. We think corporate credit fundamentals remain solid and we’re not expecting a significant rise in defaults since most companies have been focusing on improving their balance sheets.

    • Pictet Asset Management

      We forecast global growth to slow to 1.7% in 2023, with stagnation in most developed economies and outright recession in Europe. China’s economy, on the other hand, is likely to re-accelerate as the government relaxes its zero-Covid policy. Overall, growth is likely to pick up again following the first quarter.

    • Pimco

      As we navigate a period of elevated inflation and an economic slowdown, our starting point is one of caution. Pimco’s business cycle models forecast a recession across Europe, the UK, and the US in the next year, and the major central banks are pressing ahead with policy tightening despite increasing strain in financial markets.

    • Pimco

      Our base case of an economic slowdown or recession would bring demand destruction and ease inflationary pressures, which also implies that the US Fed funds rate may peak in early 2023.

    • Pimco

      We see ample evidence that both the near- and long-term case for fixed income is strong today. Higher starting yields have increased long-term return potential, while higher-quality bonds should resume their role as a reliable diversifier against equities if a recession materializes.

    • Pimco

      We believe corporate earnings estimates globally remain too high and will have to be revised downward as companies increasingly acknowledge deteriorating fundamentals. Only when rates stabilize and earnings gain ground would we consider positioning for an early cycle environment across asset classes, which would likely include increasing allocations to risk assets. High yield credit and equities generally only rally late in a recession and early in an expansion.

    • Pimco

      As a recession begins and inflation slows, duration is likely the first asset class to be poised for outperformance, especially in rate-sensitive countries like Australia and Canada as well as select emerging markets that are ahead in the hiking cycle.

    • Pimco

      Once a recession is underway and the initial deleveraging is mostly done, we expect high quality investment grade credit spreads would also begin to tighten. This year, the initial condition of corporate balance sheets is generally healthy, and we view a default wave as unlikely, especially considering the Fed’s continuing focus on financial stability and functioning credit markets.

    • Principal Asset Management

      2023 is sizing up to be a better year for some segments of the market than 2022. Inflation and central bank policy will likely continue being a key focus for investors. Yet, while persistently restrictive monetary policy and the resulting US recession will weigh on the broad equity market outlook, it implies opportunities for both core fixed income and real assets.

    • Principal Asset Management

      While the Federal Reserve will hike a few more times in 2023, it is likely nearing the completion of its tightening cycle. This implies that bonds will be able to support portfolios as recession approaches, with government bond yields under downward pressure and securitized debt typically providing protection during periods of volatility and risk.

    • Robeco

      In our base case, 2023 will be a recession year that – once the three peaks in inflation, rates and the dollar have been reached – will ultimately contribute to a considerable brightening of the return outlook for major asset classes. But we first need to brace for more pain in the short term.

    • Robeco

      We think that the belief in central bankers’ ability to prevent cyclical downturn is flawed. Instead, we expect a hard landing. Risks are tilted to the downside for the 2023 consensus of US annual real GDP growth of 0.8%. As recessions tend to be highly disinflationary, we believe this will take the sting out of inflation.

    • Robeco

      With core inflation still well above target in the first half of 2023, central bankers will likely stretch the pause after the hiking cycle and be reluctant to cut interest rates, even in the face of a US recession.

    • Robeco

      Comparing high yield valuations with those of equities, high yield looks more attractive at this stage. We expect an earnings recession to gain traction as we enter 2023: earnings per share could drop 20-30%. This is not yet fully recognized by the equity market.

    • Robeco

      Equity valuations have not yet hit rock bottom. In addition, the next recession could prove to be less mild than currently priced in by, for instance, high yield option-adjusted spreads.

    • Schroders

      The overall market outlook for 2023 will largely depend on the direction of US Fed monetary policy, which the firm sees pivoting, and whether or not a global recession would become a reality, which the team considers likely.

    • Schroders

      Recession may not necessarily be bad for all markets since financial markets tend to be forward-looking and are likely to have already priced in much of the negative impact.

    • Schroders

      Schroders expects 2023 to usher in a turning point for global equities after the sharp corrections seen year-to-date this year. Valuations are now at more attractive levels where investors may look to quality companies across markets for opportunities when the time is ripe, subject to recessionary risks and currently over-optimistic expectations on corporate earnings.

    • Schroders

      We tend to focus on resilient companies that are of high profit margins and low leverage ratios. Usually, these are quality stocks that can generate profits even in tough, recession-prone environments.

    • Societe Generale

      2023 should be a year during which the real economy finally deteriorates into a (mild) recession, monetary conditions gradually stop tightening, while systemic risk grows.

    • Societe Generale

      We expect euro investment grade to generate excess returns of more than 5% in 2023 and total returns of just under 10%, which would be the best performance in a decade. A bull decompression in the early stages of the rally should prompt IG to outperform high yield, Single A to outperform BBB and Banks and Utilities to outperform Industrials and Cyclicals. US expected return on credit is even higher, as we expect a milder recession there.

    • Societe Generale

      Fair value for the S&P 500 currently reads at 3,650 based on our inflation moderation valuation framework. But we expect negative EPS growth in the first quarter, a Fed pivot in the second, China re-opening in the third and rising US recession risk in the fourth. This should see the S&P 500 trading in a wide range of 3,500 to 4,000, around that 3,650 fair value. Ultimately, we expect the S&P 500 to end 2023 at 3,800.

    • State Street

      With leading economic indicators falling deeper into negative territory — flashing warning signs of a recession — additional earnings downgrades are highly likely.

    • T. Rowe Price

      The Fed hiking cycle isn’t complete, but it has covered much ground. Long duration Treasuries historically have performed well in recessions and could provide diversification as the economy weakens.

    • T. Rowe Price

      Cheaper valuations reflect the current challenges from high inflation, recession risks, and an energy crisis in Europe. An easing of these headwinds and continued fiscal support could provide upside over the course of 2023. Valuations are compelling, but high energy costs and weakening manufacturing activity make a European recession likely. We expect the ECB’s resolve on fighting inflation to ease as economic growth wanes in 2023.

    • TD Securities

      2023 will see a balancing act from central banks, as they maintain restrictive policy to bring inflation down against a backdrop of recessions across most of the G-10. Inflation remains above target all year, and we anticipate a global recession.

    • TD Securities

      Forward corporate earnings have not started correcting for the recession. We expect wider credit spreads, decompression between high-yield vs investment grade, and focus on higher-quality, lower-maturity exposures.

    • Truist Wealth

      We expect next year will be the worst year for global growth since the 1980s, aside from the global financial crisis and Covid years. Many countries are set to experience recessionary pressures as the supersized rate hikes of the past year start to take stronger hold.

    • Truist Wealth

      Our base case calls for a US recession in 2023, even though economic growth in the US is expected to remain stronger relative to global peers. Europe is likely to see the deepest recession, with countries closer to Ukraine and Russia being hit especially hard.

    • Truist Wealth

      The equity market’s reset is a positive for longer-term returns. However, the near-term risk/reward remains unfavorable given elevated recession risk, uncompelling valuations, and downside earnings risk.Our shorter-term, tactical outlook leads us to remain defensive heading into 2023.

    • Truist Wealth

      Historically, earnings around recessions have averaged a drop of almost 20%. We don’t necessarily believe that earnings have to fall that far given how well corporations have navigated the pandemic and the fact that elevated inflation raises nominal sales figures, but there remains downside risk.

    • UBS

      We forecast a historically weak outlook: global growth of just 2.1% year-on-year in 2023 would be the lowest since 1993 excluding the pandemic and GFC. With 13 out of 32 economies expected to contract for at least two quarters by end 2023, our forecast approaches something akin to a “global recession.”

    • UBS

      For the US, we now expect near zero growth in both 2023 and 2024 (roughly 1 percentage point below consensus), and a recession to start in 2023. Combined with inflation falling rapidly (50 basis points below consensus), the Fed would cut the Federal Funds rate down to 1.25% by early 2024. The speed of that pivot will drive every asset class next year.

    • UBS

      Stocks are pricing in only 41% and 80% probabilities of a recession in the US and Europe, respectively. Weak growth and earnings drag the market lower before a fall in rates helps it bottom at 3,200 in the second quarter and lifts it to 3,900 by the end of 2023. With revenues and margins under greater pressure, Eurostoxx is likely to do worse, bottoming in the second quarter at 330 & ending 2023 at 385. As a part of our top trades we lay out stock lists of disinflation beneficiaries. Quality and Growth are likely to perform better than Value.

    • UBS

      As US carry advantage and rates volatility fade more rapidly than in a typical recession, we expect the dollar to slowly fall against G-10 currencies. Its fall should be limited, however, by weak global growth, a key driver for the dollar. We prefer AUD and NZD over CAD, and NOK over SEK. We see Asia in particular under pressure in the first half amid a weak trade backdrop, low carry and a need to rebuild depleted FX reserves.

    • UBS

      The economic weakness we forecast is widespread but it is not deep. It would be enough, however, to push unemployment 100 basis points higher in DM, and 200 basis points in the US (to 5.5%). Combined with inflation coming down rapidly in the coming quarters, that creates a much stronger central bank pivot than is priced by the market: about 200 basis points in DM cuts by mid-2024 (and nearly 400 basis points in the US).

    • UBS

      Against long-term average global growth of 3.5%, the common signal across assets is pricing in 3% global growth. That’s sub-trend but not recessionary. High-yield credit is most optimistic, equities less so. But a deep dive within equities shows that even they are not priced for a recession yet. US equities are pricing in only a 41% probability of recession, compared to 80% in Europe (which is already in recession) and 64% for China. The decline in stocks thus far can be fully explained by the rise in real rates and widening of spreads. The growth downturn is yet to be priced. The lows are not in yet.

    • UBS Asset Management

      While a recession is a very real possibility, investors may be surprised by the resilience of the global economy – even with such a sharp tightening in financial conditions. The labor market will certainly cool, but healthy household balance sheets should continue to support spending in the services sector. Moreover, some of the major drags on the world economy emanating from Europe and China are poised to get better, not worse, between now and the end of the first quarter of 2023.

    • UBS Asset Management

      In our view, it is too early to pre-position for very negative economic outcomes. A longer-lasting late cycle environment can persist for some time, and investors will have to be flexible and discerning in 2023 given these potential dynamics.

    • UniCredit

      We forecast a mild technical recession in both the US and the euro zone, followed by a below-trend recovery. The risks to growth are skewed to the downside, including from negative geopolitical developments, greater persistence in wage and price setting, and financial stability risks.

    • UniCredit

      We forecast global GDP growth of 1.9% next year – a de facto global recession – followed by a weak recovery in 2024 of 2.6%.

    • UniCredit

      The ongoing sharp monetary tightening and upcoming recession pose significant downside risks. However, evidence of slowing core inflation, peaking official rates and signs of economic recovery would pave the way for more risk taking in the second half.

    • Vanguard

      Our base case is a global recession in 2023 brought about by the efforts to reduce inflation.

    • Vanguard

      Households, businesses, and financial institutions are in a much better position to handle an eventual downturn, to the extent that drawing recent historical parallels seems misplaced. Although all recessions are painful, this one is unlikely to be historic.

    • Vanguard

      In credit, valuations are fair, but the growing likelihood of recession and declining profit margins skew the risks toward higher spreads. Although credit exposure can add volatility, its higher expected return than US Treasuries and low correlation with equities validate its inclusion in portfolios.

    • Wells Fargo

      The dollar will stay stubbornly strong through the first half of 2023. The market is too sanguine the European/UK energy situation – deeper-than-expected recessions in euro zone/UK vs. resilient US growth keeps upward pressure on the broad dollar. By mid-year we call for EURUSD to return to parity and GBPUSD to reach 1.11.

    • Wells Fargo

      Stagflation is the biggest macro risk, in our opinion, and central bank responses would be tough to predict. Some policymakers likely would opt to put their economies into the deep freeze so they could squelch inflation.

    • Wells Fargo Investment Institute

      We expect a U.S. recession in the first half of 2023, as well as a continued global economic slowdown, as last year’s hawkish monetary policy and money growth slowdown works with a lag. That should drive down corporate earnings growth and create important inflection points for investors over the next nine to 12 months.

    • Wells Fargo Investment Institute

      Wells Fargo Investment Institute expects a recession in early 2023, recovery by midyear, and a rebound that gains strength into year-end. Nevertheless, full-year US economic growth and inflation targets may reflect mostly the recession.

    • Wells Fargo Investment Institute

      Dollar strength early in the year should flatten and partially reverse its upward trajectory, as slowing inflation and Federal Reserve interest-rate cuts in the second half of 2023 remove a key source of support.

    • Wells Fargo Investment Institute

      We believe that a recession and unwinding inflationary shocks of the past 18 months will allow inflation to decline to under 3% on a year-over-year basis by year-end 2023.

    • Wells Fargo Investment Institute

      We expect earnings to contract in 2023 as the recession leads to declining revenues and profit margins. Valuations should rebound in 2023 to lift equity markets by year-end as early cycle dynamics begin to take hold.

    • Wells Fargo Investment Institute

      We expect US Treasury yields to decline in 2023 as we go through an economic recession and in anticipation of policy rate cuts from the Fed.

  4. INFLATION
    • Amundi Asset Management

      In Europe, the energy shock, compounded by inflationary pressures related to the aftermath of the Covid crisis, remains the main dampener on growth. The ensuing cost-of-living crisis will drag Europe into recession this winter before a slow recovery. But that doesn’t mean inflation will abate.

    • Amundi Asset Management

      In the US, the Fed’s aggressive tightening has increased the risk of recession in the second half, while again failing to dent inflation.

    • Amundi Asset Management

      This low growth-high inflation environment will spread to emerging markets, with China the exception. Amundi has cut China’s GDP forecast to 4.5% from 5.2%. That’s a lot better than China’s anemic growth levels of 2022 (3.2%) and is based on hopes of a stabilization in the housing market and a gradual re-opening of the economy.

    • Amundi Asset Management

      Inflation will stay stubbornly high through most of 2023. Central banks will continue their “whatever it takes” policy to avoid a 1970-style crisis. Tightening has further to go, but at a slower pace than in 2022. The level of the Fed terminal rate will be critical, raising the odds of a US recession if it ends up close to 6%.

    • Amundi Asset Management

      Persistent inflation means higher allocation to real assets that are resilient to inflation, such as infrastructure. While private debt has started to reprice, it enjoys strong fundamentals for most parts, and real estate can be a good diversifier.

    • Amundi Asset Management

      Differences between emerging markets will intensify in 2023. Countries with a more benign inflation and monetary outlook such as in Latin America and EMEA are attractive. A Fed pivot should boost the appeal of EM equities generally later in the year.

    • Amundi Asset Management

      Long-term ESG themes will continue to benefit from the aftermath of the Covid-19 crisis and the Ukraine war. Investors should get exposure to energy transition and food security, as well as re-shoring trends provoked by geopolitics. Social themes will be back in focus, as the deteriorating labor market and inflation demand more attention to social factors.

    • AXA Investment Managers

      A policy-induced recession looks like the price to pay to get inflation back under control after a peak in late 2022. While we are confident that by the middle of 2023 the world economy will start improving again, we would warn against any excessive enthusiasm. Beyond the cyclical recovery, many structural questions will remain unanswered.

    • AXA Investment Managers

      We expect inflation to fall back towards target over the coming two years as global growth slows, with recessions forecast in both Europe and the US.

    • AXA Investment Managers

      The Fed won’t want to cut rates as quickly as the market is currently pricing (second half of 2023) since they will want to be satisfied that they have properly broken the back of inflation. The price to pay for this will be a recession in the first three quarters of 2023 in the US which will trigger the usual adverse ripple effects over the entirety of the world economy next year. Any recession looks set to be mild, though our US GDP outlook of -0.2% and 0.9% for 2023 and 2024 is lower than consensus. Interest rates appear close to a peak – we estimate 5% – and are likely to remain at that level until 2024.

    • Bank of America

      With inflation, the dollar and Fed hawkishness peaking in the first half of 2023, markets are expected to tolerate more risk later in the year. The S&P 500 typically reaches its bottom six months ahead of the end of a recession, and as a result, bonds appear more attractive in the first half of 2023, while the backdrop for stocks should be better in the later half. We expect the S&P to end the year at 4,000 and S&P earnings per share to total $200 for the year.

    • Bank of America

      After a volatile start to 2023, emerging markets should produce strong returns. Once inflation and rates peak in the US and China reopens, the outlook for emerging markets should turn more favorable. China equities will likely strengthen due to a reversal in both zero-Covid and property tightening.

    • Barclays

      Inflation is unlikely to fall quickly in 2023, meaning that monetary policy will have to be restrictive, even with economies in recession. Europe’s energy crunch and US sanctions on China are sources of particular concern.

    • Barclays

      The global economy looks set to enter a stagflationary phase: as Europe and the US contract, growth remains sluggish in China, but inflation fades only gradually. Bringing inflation back to target, while output sinks and employment rises, will test central banks’ resolve.

    • BCA Research

      Inflation will come down rapidly as pandemic and war-induced dislocations fade, the mix of spending between goods and services normalizes, and the aggregate demand curve slides down the steep side of the aggregate supply curve in response to the lagged effects of tighter financial conditions.

    • BCA Research

      Global bond yields will move sideways in the first half of next year, as the impact of falling inflation broadly offsets the impact of better-than-expected growth data. Yields should drop modestly in the second half of the year as the US economy edges closer to recession.

    • BCA Research

      Gold will remain a desirable hedge against a variety of geopolitical risks, as well as the risk of a second wave of inflation. We are neutral on gold going into 2023.

    • BlackRock Investment Institute

      The new regime of greater macro and market volatility is playing out. A recession is foretold; central banks are on course to overtighten policy as they seek to tame inflation. This keeps us tactically underweight developed market equities. We expect to turn more positive on risk assets at some point in 2023 – but we are not there yet. And when we get there, we don’t see the sustained bull markets of the past.

    • BlackRock Investment Institute

      Central bankers won’t ride to the rescue when growth slows in this new regime, contrary to what investors have come to expect. We see central banks eventually backing off from rate hikes as the economic damage becomes reality. We expect inflation to cool but stay persistently higher than central bank targets of 2%.

    • BlackRock Investment Institute

      We are underweight nominal long-term government bonds in each scenario in this new regime. This is our strongest conviction in any scenario. We think long-term government bonds won’t play their traditional role as portfolio diversifiers due to persistent inflation. And we see investors demanding higher compensation for holding them as central banks tighten monetary policy at a time of record debt levels.

    • BlackRock Investment Institute

      We see long-term drivers of the new regime such as aging workforces keeping inflation above pre-pandemic levels. We stay overweight inflation-linked bonds on both a tactical and strategic horizon as a result.

    • BNP Paribas

      Despite a likely steep fall in inflation next year, stubborn price pressures look set to keep the US Federal Reserve and the European Central Bank hiking into a recession in the first quarter of 2023.

    • BNY Mellon Investment Management

      With Europe and the UK in or approaching recession, China slowing sharply and the US “needing” one to bring inflation back to target, it is our belief that “Global Recession” remains our single most likely scenario – we give it a 60% probability.

    • BNY Mellon Investment Management

      Output is likely to fall in 2023, with risks to the downside. Inflation will probably fall too, but relatively slowly, remaining above target for some time, with risks to the upside. As a result, despite recession, interest rates are set to rise further, though with risks to the downside. All this stands in stark contrast to the “soft landing” narrative.

    • BNY Mellon Investment Management

      Within fixed income, we prefer developed market sovereigns on the back of the nascent disinflationary trend, real policy rates nearing positive territory, and several central banks downshifting the pace of rate hikes.

    • BNY Mellon Investment Management

      Inflation stays persistent in advanced economies – brought on by a wage-price spiral in the US and prolonged upstream price pressure in Europe. Fed responds hawkishly, with the ECB not far behind. Tightening financial conditions and erosion of real incomes results in a sizable downturn in Europe in the first half, with US following a quarter or two later.

    • Brandywine Global Investment Management

      The most intense period of economic softness is likely to be in the first half of 2023, based on the weight of leading indicators. However, there are a range of factors that could limit downside recessionary forces, including: the recent plunge in energy prices, the rebound in the US auto sector, and what could turn out to be a rapid decline in inflation. The conditions for a credit crunch, commonly seen ahead of other US recessions, do not exist currently.

    • Brandywine Global Investment Management

      Recession odds increase significantly if Fed Chair Powell remains dogmatic on the need to create labor market slack. However, he has proven himself impressionable when it comes to the data. A pause in rate hikes seems very probable, especially if the data show a steep and deep decline in inflation.

    • Brandywine Global Investment Management

      Outside of the US, the global economy is already in recession due to the effects of the strong dollar and a very weak China. China has started to back away, slowly, from the policies that have been depressing activity. If the dollar corrects lower as the US economy decelerates and inflation retreats, and the US avoids a bust, the world economy could be stabilizing by this time next year.

    • Brandywine Global Investment Management

      In addition to the favorable technical developments for bonds in 2023, two potential disinflationary outcomes for the global economy also support fixed income, particularly if an investor’s time horizon is the entire year. We expect a job-killing recession is necessary to break inflation and get it close to central banks’ 2% target. That means there will be meaningful weakness in the labor market globally. Under this type of disinflationary bust, a typical recession, higher-quality sovereign bonds are the best returners.

    • Brandywine Global Investment Management

      US equities remain our biggest country underweight. We think there is more bad news to come, and market expectations and valuations are still too optimistic. It is clear to everyone, except the central bankers, that the Fed is on course for another major policy error. They may succeed in curing inflation but are also likely to seriously hurt the patient in the process. We are content to stay defensive and underweight the US until valuations offer a greater margin of safety, or the Fed alters its monetary policy.

    • Carmignac

      We expect the US economy to enter a recession later this year but with a much sharper and longer decline in activity than anticipated by the consensus. Faced with inflation, the Fed will have to create the conditions for a real recession with an unemployment rate well above 5%, compared with 3.5% today, which is not currently envisaged by the consensus

    • Carmignac

      In equity markets, while the drop in valuations appear broadly consistent with a recessionary backdrop, there are wide disparities between regions – even more so on earnings. The eyes of global investors are focused on Western inflation and growth dynamics. Looking towards the East should prove salutary and offer most welcomed diversification.

    • Carmignac

      On the sovereign bond side, weaker economic growth is generally associated with lower bond yields. However, given the inflationary environment, while the pace of tightening may slow or even stop, it is unlikely to reverse soon.

    • Citi

      We are currently at a spot in the US business cycle where fears of inflation and the Fed are fading, but fears of a recession are not yet pronounced enough to lead to downside in equity markets. As we enter 2023, we expect US recession fears to become the driver. We remain underweight assets that are likely to underperform into a US recession.

    • Citi

      Global growth is expected to slow to below 2% in 2023 — excluding China, global growth is likely to run at less than a 1% pace, near some definitions of global recession. Inflation next year is likely to gradually decline but remain high on average.

    • Citi

      Our quant corner finds macro-economic conditions in stagflationary territory and is bearish risky assets. Using our economic forecasts, next year could be brighter, as inflation is likely peaking and central bank hiking cycles more mature, setting the stage for overweights in credit and bonds.

    • Citi Global Wealth Investments

      We need to get through a recession in the US that has not started yet. We believe that the Fed’s current and expected tightening will reduce nominal spending growth by more than half, raise US unemployment above 5% and cause a 10% decline in corporate earnings. The Fed will likely reduce the demand for labor sufficiently to slow services inflation just as high inventories are already curtailing goods inflation.

    • Citi Global Wealth Investments

      We need to get through a deeper recession in Europe as it struggles through a winter of energy scarcity and inflation. We also need to see a sustained economic recovery in China, whose prior regulatory policies and current Covid policies curtail domestic growth.

    • Columbia Threadneedle

      Investors should not expect everything to go “back to normal” in 2023. Higher inflation and a weaker economic environment will mean not all companies will thrive.

    • Comerica Wealth Management

      In 2023, we envision an environment of moderating but persistent price pressures that will keep monetary policymakers on a steady, but less aggressive, tightening path. Our base case calls for mild recession early in the year and steady market interest rates.

    • Comerica Wealth Management

      We remain cautious on longer-term US Treasuries in the coming months as persistently high inflation will likely lead to further volatility as investors demand a higher-term premium. We believe shorter-dated Treasuries, however, are closer to pricing in a peak for policy rates and offer relatively attractive income opportunities.

    • Commonwealth Financial Network

      Our outlook for 2023 remains uncertain and will hinge on whether the Fed is able to rein in inflation while keeping us out of recession. But because the labor market continues to show strength, lending support to the consumer sector—the largest part of the economy—we are cautiously optimistic that the economy and markets will move in a positive direction in the new year, though there may be some bumps along the way.

    • Commonwealth Financial Network

      We believe inflation is set to fall meaningfully throughout the coming year as the economy slows due to the Fed’s aggressive interest rate hikes. We’ve already seen positive signs that drivers of inflation in key economic sectors have improved or rolled over. If that continues, without kicking off a recession, the Fed just may achieve its elusive soft landing.

    • Commonwealth Financial Network

      Industry analysts currently expect S&P 500 earnings growth to be in the high single digits by the end of the year, with 2023 growth in the 5% range. We believe these expectations are reasonable, especially if the labor market and consumer spending remain healthy and inflation weakens.

    • Commonwealth Financial Network

      As a result of the 2022 selloff, fixed income asset classes may now offer some of the most attractive valuations we’ve seen in decades. The Fed has been very vocal about its goal of bringing inflation under control. If it meets its objective, which appears likely, interest rates should stabilize, which could support a number of segments in the fixed income universe.

    • Commonwealth Financial Network

      Going forward, it’s reasonable to believe the US dollar will remain strong. But an equally compelling argument could be made that its current strength will not be sustained throughout 2023. If the Fed cools down inflation and curbs interest rate increases, investors could see the dollar stabilize—or possibly weaken—against other currencies. Several wild cards need to be considered, including the ongoing war in Ukraine, elevated oil prices, and above-average inflationary readings for a prolonged period. Still, our current expectation is that the greenback will not cause as many headwinds for international equity allocations as it did in 2022.

    • Credit Suisse

      Inflation is peaking in most countries as a result of decisive monetary policy action, and should eventually decline in 2023. Our key assumption is that it will remain above central bank targets in 2023 in most major developed economies, including the US, the UK and the euro zone. We do not forecast interest-rate cuts by any of the developed market central banks next year.

    • Credit Suisse

      With inflation likely to normalize in 2023, fixed-income assets should become more attractive to hold and offer renewed diversification benefits in portfolios. US curve “steepeners,” long-duration US government bonds (over euro zone government bonds), emerging-market hard currency debt, investment grade credit and crossovers should offer interesting opportunities in 2023. Risks for this asset class include a renewed phase of volatility in rates due to higher-than-expected inflation.

    • Deutsche Bank

      We read the Fed and ECB as being absolutely committed to bringing inflation back to desired levels within the next several years. Although the costs in doing so may be lower than in the past, it will not be possible to do so without at least moderate economic downturns in the US and Europe, and significant increases in unemployment.

    • Deutsche Bank

      The current mix of aggressive central bank rate hiking to deal with elevated inflation, geopolitical uncertainty and elevated commodity prices, and impending recession in the euro area and US has been a toxic mix for emerging markets. We see this sector remaining under pressure well into 2023, but then beginning to trend more positive later in the year as inflation begins to recede and central bank policy begins to reverse both domestically and by the Fed.

    • Deutsche Bank

      The current mix of aggressive central bank rate hiking to deal with elevated inflation, geopolitical uncertainty and elevated commodity prices, and impending recession in the euro area and US has been a toxic mix for emerging markets. We see this sector remaining under pressure well into 2023, but then beginning to trend more positive later in the year as inflation begins to recede and central bank policy begins to reverse both domestically and by the Fed.

    • Deutsche Bank

      We think the Fed and ECB will succeed in their missions as they stick to their guns in the face of what is likely to be withering public opposition as unemployment mounts. The moderate cost of doing so now will be much lower than failing to do so and having to deal with a more severely ingrained inflation problem down the road. Doing so now will also set the stage for a more sustainable economic and financial recovery into 2024.

    • Deutsche Bank

      Declines in aggregate demand and increases in unemployment will relieve upward pressure on wages and prices, enough we think to move inflation gradually back to desired levels by the end of 2024.

    • DWS

      Inflation rates are expected to fall in 2023 but will still remain at a high level – 6% in the euro zone and 4.1% in the US.

    • DWS

      On the corporate side, profits are likely to come under pressure, but much less so than in past recessions. In view of the higher interest rate level, bonds are significantly more attractive than in the past, as a yield generator and as a diversification instrument. In general, however, the return prospects of risk assets are limited, but high enough to be able to beat inflation.

    • Fidelity

      Rates should eventually plateau, but if inflation remains sticky above 2%, they are unlikely to reduce quickly even if banks take other measures to maintain liquidity and manage increasingly challenging debt piles.

    • Fidelity

      In the US, the Fed appears set on raising rates significantly beyond neutral levels to bring inflation under control. We do not expect a pivot until there is a meaningful deterioration in hard data, especially inflation and the labor market. Although we do not expect it soon, when it does arrive, it should boost risky assets such as equities and credit, as well as government bonds.

    • Fidelity

      We have repeatedly argued that the financial system cannot take positive real rates for any material length of time (due to high levels of debt) before financial stability becomes an issue. Given liquidity and assets are already under considerable pressure, the system could start to crack. There is a risk that if the Fed stays true to its current word and doesn’t stop until inflation is back near 2%, a “standard” recession could turn into something worse.

    • Fidelity

      Inflation is likely to moderate, but we expect it will do so gradually. Indeed, structural trends such as decarbonisation, deglobalization, and the process of dealing with high debt levels are likely to keep up the inflationary pressure over the coming years.

    • Franklin Templeton

      Our base case is inflation will further recede as supply chain pressures ease and central banks will remain committed to tighter policy. However, the result of this policy is likely to be a slowing of the economy.

    • Franklin Templeton

      The impact of inflation on listed infrastructure in 2023 should be muted, particularly for regulated assets, which often have inflation adjustment clauses. Infrastructure earnings look better protected in general than global equity earnings, in our view.

    • Franklin Templeton

      Historically, US commercial real estate investment has performed favorably in periods of rising interest rates and inflation. Current macro risks and market dislocations may create attractive buying opportunities over the next 12–18 months in some sectors of commercial real estate.

    • Generali Investments

      The start of 2023 is dominated by a global – if desynchronized – economic slowdown (cold) but still elevated inflation (hot). Our core scenario sees a mild euro-area recession, and an even milder US one. Risks are skewed to the downside: such brutal tightening of monetary policy and financial conditions rarely leaves the economy and markets unscathed.

    • Generali Investments

      We forecast a drop in global growth from 3.2% in 2022 to 2.1% in 2023. We expect barely positive US growth (0.3%), with even a mild contraction over the central quarters of 2023. We expect core CPI inflation to end 2023 slightly above 3% year-on-year. Europe is likely entering recession at the turn of the year, while the Covid policy relaxation in China, along with a better credit impulse, will support a mild recovery.

    • Goldman Sachs

      The US should narrowly avoid recession as core PCE inflation slows from 5% now to 3% in late 2023 with a 0.5 percentage point rise in the unemployment rate. To keep growth below potential amidst stronger real income growth, we now see the Fed hiking to a peak of 5-5.25%. We don’t expect cuts in 2023.

    • Goldman Sachs

      The euro area and the UK are probably in recession, mainly because of the real income hit from surging energy bills. But we expect only a mild downturn as Europe has already managed to cut Russian gas imports without crushing activity and is likely to benefit from the same post-pandemic improvements that are helping avoid US recession. Given reduced risks of a deep downturn and persistent inflation, we now expect hikes through May with a 3% ECB peak.

    • Goldman Sachs

      After a sharp increase in bond yields this year, new and potentially less risky alternatives are emerging in fixed income: US investment grade corporate bonds yield almost 6%, have little refinancing risk and are relatively insulated from an economic downturn. Investors can also lock in attractive real (inflation-adjusted) yields with 10-year and 30-year Treasury inflation protected securities (TIPS) close to 1.5%.

    • Goldman Sachs

      Markets are now pricing in a more dovish Federal Reserve, signalling an expectation that the US central bank will begin lowering its funds rate by the end of next year. Our economists, by contrast, don’t expect any rate cuts in 2023. If the US economy turns out to be more resilient than anticipated and inflation stickier in 2023, stock markets and Treasuries could fall in price.

    • Goldman Sachs

      With inflation still running hot, central banks are more likely to try to cool economic growth and tighten financial conditions than to boost them. And if they don’t fight inflation, there’s a risk that longer-dated bond yields will increase anyway because of rising long-term inflation expectations.

    • Goldman Sachs

      We see potential for bonds to be less positively correlated with equities later in 2023 and provide more diversification benefits. But until central banks stop hiking and inflation normalizes further, they are unlikely to be a reliable buffer for risky assets.

    • Hirtle Callaghan

      Within credit, we remain slightly underweight duration but will extend to the full duration of the benchmark as rates rise from here. We still like TIPS in this environment. The real yield has come down slightly (with the five-year TIPS real yield at 1.5%), but they have the benefit of offering inflation protection.

    • HSBC

      We think markets have become too complacent both in regard to the inflation and Fed outlook and the growth outlook. Virtually all of our cyclical leading indicators are still pointing to much more weakness on the growth side in the coming two to three quarters. The point here is that these signals are no longer confined to just one particular area of the economy. The weakness is much more broad-based now, which gives us even higher conviction in our call. We remain decidedly risk-off for the first half of 2023.

    • HSBC

      Diversification benefits are very scarce in an environment that is driven so much by one single factor (inflation/the Fed). One of the only asset classes that has a high-enough loss threshold in both a recession and a sticky inflation/labor market scenario is probably investment-grade credit.

    • HSBC Asset Management

      Our “house view” continues to reflect an overall cautious stance. We do not advocate an aggressive use of risk budgets. 2023 is going to be a year about the macro cycle. We have likely reached peak central bank hawkishness as the headline inflation rates begin to cool and given the extent of tightening so far. Economies are in different situations or “parallel worlds,” which should create some relative-value opportunities for global investors in 2023.

    • HSBC Asset Management

      Inflation should still be persistently high for much of 2023, and on the back of rapid tightening by the Federal Reserve we are forecasting a recession for the US in 2023 – a corporate profits recession in the first half of the year, followed by a GDP recession.

    • HSBC Asset Management

      A turnaround could follow later in the year amid cooling inflation – aided by weaker labor and housing markets – which means central banks can pause rate hikes, with even the prospect of rate cuts later in the year. With better visibility on the policy and economic outlook, investor sentiment will recover from rock bottom levels to take advantage of much improved valuations in riskier asset classes such as equities and high-yield corporate bonds.

    • Invesco

      Our base case anticipates inflation moderating, resulting in a pause in central bank tightening early in 2023. This enables an economic recovery to unfold later in the year.

    • Invesco

      We expect headline inflation rates to come down in the near term, and 2023 should see a period of declining inflation rates, especially in the US.

    • Invesco

      US and European central banks are tightening despite slowing growth, signs that inflation is peaking and the fact that financial conditions have already tightened substantially. We expect these factors to eventually turn the tide, leading to a pause in rate hikes materializing in early 2023.

    • JPMorgan

      The good news is that central banks will likely be forced to pivot and signal cutting interest rates sometime next year, which should result in a sustained recovery of asset prices and subsequently the economy by the end of 2023. The bad news is that in order for that pivot to happen, we will need to see a combination of more economic weakness, an increase in unemployment, market volatility, decline in levels of risky assets and a fall in inflation.

    • JPMorgan

      The global growth outlook remains depressed, but we do not see the global economy at imminent risk of sliding into recession, as the sharp decline in inflation helps promote growth, but a US recession is likely before the end of 2024.

    • JPMorgan

      Global consumer price index (CPI) inflation is on track to slow toward 3.5% in early 2023 after approaching 10% in the second half of 2022.

    • JPMorgan

      The convergence between the US and international markets should continue next year, both on a dollar and local currency basis. The S&P 500 risk-reward relative to other regions remains unattractive. Continental European equities have a likely recession to negotiate and geopolitical tail risks, but the euro zone has never been this attractively priced versus the US. Japan should be relatively resilient due to solid corporate earnings from the economy’s reopening, attractive valuation and smaller inflation risk compared with other markets.

    • JPMorgan Asset Management

      Despite remaining above central bank targets, inflation should start to moderate as the economy slows, the labor market weakens, supply chain pressures continue to ease and Europe manages to diversify its energy supply.

    • JPMorgan Asset Management

      Inflation may not be heading back quickly to 2%, but we suspect that the central banks will be happy to pause, so long as inflation is headed in the right direction.

    • JPMorgan Asset Management

      Looking forward, it is clear that the income on offer from bonds is now far more enticing. The global government bond benchmark has seen yields rise by roughly 200 basis points since the start of the year, while high-yield bonds are again worthy of such a title with yields approaching double digits. Valuations in inflation adjusted terms also look more attractive – while the roughly 1% real yield on global government bonds may not sound particularly exciting, it is back to the highest level since the financial crisis and around long-term averages.

    • JPMorgan Asset Management

      Given this uncertainty about inflation and growth, and the chunky yields available in short-dated government bonds, investors might want to spread their allocation along the fixed income curve, taking more duration than we would have advised for much of the year.

    • Macquarie Asset Management

      As supply chain pressures ease and aggregate demand weakens, inflation is likely to moderate during 2023 but also remain above central bank targets of about 2%.

    • Macquarie Asset Management

      Investors are likely to continue to be attracted to equity investments that are defensive, have high yields, and offer inflation protection. Infrastructure has all these traits in spades.

    • Macquarie Asset Management

      Bond yields rose considerably in 2022, offering attractive valuations and strong protection levels for investors in investment grade, high yield markets, and developed world sovereigns. However, in Macquarie Asset Management’s view, a defensive position is warranted given the potential for recessions and inflation to undermine the strong start to 2023.

    • Macquarie Asset Management

      Within credit, fundamentals remain strong in both investment grade and high yield markets. However, we are entering an uncertain macroeconomic environment with the impact from inflationary cost pressures and deteriorating growth likely to lead to weaker fundamentals. Against this backdrop, we believe defensive positioning within high-quality credit is appropriate.

    • Morgan Stanley

      In an environment of slow growth, lower inflation and new monetary policies, expect 2023 to have upside for bonds, defensive stocks and emerging markets.

    • Morgan Stanley

      Bonds — the biggest losers of 2022 — could be the biggest winners in 2023, as global macro trends temper inflation next year and central banks pause their rate hikes. This is particularly true for high-quality bonds, which historically have performed well after the Federal Reserve stops raising interest rates, even when a recession follows.

    • Morgan Stanley

      European equities could offer a modest upside, with a forecasted 6.3% total return over 2023 as lower inflation nudges stock valuations higher.

    • Morgan Stanley

      Valuations are clearly cheap, and cyclical winds are shifting in favor of emerging markets as global inflation eases more quickly than expected, the Fed stops hiking rates and the dollar declines. The MSCI EM, an index of mid and large-cap companies in 24 emerging markets, could see 12% price returns in 2023. EM debt could benefit from a combination of trends. Fixed-income strategists forecast a 14.1% total return for emerging market credit, driven by a 5% excess return and a 9.1% contribution from falling Treasury yield.

    • NatWest

      Whilst there are some tentative hints that policymakers are becoming less hawkish, we do not expect any policy “pivot” (i.e. rate cuts) in 2023. The scale and persistence of the inflation overshoot in 2022 is likely to have resulted in reaction functions becoming more reactive for policy easing. Policy rate cuts in the US, euro area and UK are not expected until 2024.

    • NatWest

      Any acceleration in growth will be somewhat back-loaded and gradual in the coming year. Growth is forecast to regain momentum in 2024 as inflation pressures recede and central banks ease monetary policy, albeit cautiously.

    • NatWest

      2023 is forecast to see significant falls in inflation as the energy shock unwinds, though we expect CPI to continue to overshoot targets in the US, euro area and UK. The energy unwind is a necessary, but not a sufficient, condition for inflation to return sustainably to target.

    • NatWest

      Raging inflation could have a damaging impact on the financial condition of many leveraged corporations in the leveraged asset class. Bond and loan prices already reflect much of the stress that could have a material impact on credit metrics. Investors should be mindful of the inevitable interest rate pivot from central banks.

    • NatWest

      Europe is already in recession. Inflation will slow and the ECB will slow with it. But inflation risks are on the high side. A second phase of inflation, permitted by recovery in the second half, is more likely than a downturn that leads to rate cuts. Bearish risks to longer-term rates form a long list. We target 2.75% in 10-year bunds. This contrasts with our US rates views. Buy five-year Treasuries vs 10-year bunds – a hybrid steepener that captures the more advanced Fed and our global steepening bias.

    • Ned Davis Research

      We estimate 2.4% real global GDP growth in 2023 and assign a 65% chance of severe global recession. Recession in developed economies and a Chinese reopening present offsetting risks. Global inflation has peaked but will stay higher for longer.

    • Ned Davis Research

      Continued adjustment to pandemic imbalances, tight labor markets, and the risk of further supply shocks (either geopolitical or weather related) will likely see inflation rates remain above central bank targets through the end of 2023, indicating pivots are unlikely in the near-term.

    • Ned Davis Research

      Bonds could easily rally through yield support levels on evidence of recession, slowing inflation, and shifting policy. We raised our bond exposure to 100% of benchmark duration and are neutral on the yield curve. We are overweight Treasuries and MBS and underweight high yield, ABS and TIPS. We are marketweight everything else.

    • Neuberger Berman

      We think the next 12 months are likely to see this cycle’s peaks in global inflation, central bank policy tightening, core government bond yields and market volatility, as well as troughs in GDP growth, corporate earnings growth and global equity market valuations. But we do not believe this will mark a reversion to the post-2008 “new normal”. We see structural forces behind persistently higher inflation — and therefore a persistently higher neutral interest rate, a higher cost of capital and lower asset valuations.

    • Neuberger Berman

      Consensus earnings growth estimates for 2023 did not fall in the same way as real GDP growth estimates, perhaps because high inflation has supported nominal GDP growth. As inflation turns downward but remains relatively high as the economy slows, we think earnings estimates are likely to be revised down. We also think dispersion will increase, favoring companies that are less exposed to labor and commodity costs and have more pricing power to maintain margins, and use less aggressive earnings accounting. We believe this will translate into greater dispersion of stock performance.

    • Northern Trust

      Northern Trust expects 2023 to be a turbulent year as conditions pivot from inflation and monetary policy fears to a weak global economy, but the firm also expects market volatility to somewhat temper due to lower inflation and a pause in central bank interest rate increases. A reduction in rates is not seen as likely. We see downside risk from lower corporate profits and revenues, but with upside potential from better sentiment.

    • Northern Trust

      We are equal-weight inflation-linked bonds on the basis that central banks have the tools and perceived willingness to contain inflation, but that this is mostly reflected in valuations and the path back toward target levels may prove difficult.

    • Northern Trust

      We are neutral duration risk. In 2023 we expect Fed rate hikes to total 0.50% to 0.75%, to reach a steady policy rate of 5%, likely sufficiently high for a Fed pause. Treasury yields are likely move slightly higher but remain stable thereafter as we think labor market strength will make the Fed hesitant to reverse course. Non-US interest rates to hold steady or even decline on less inflation risk and higher recession risk than in the US.

    • Nuveen

      We expect the all-too-familiar headwinds of 2022 (persistent inflation, rising yields, hawkish central banks and a rocky geopolitical landscape) to drive volatility and uncertainty through the start of next year.

    • Nuveen

      We believe inflation is moderating, which should provide some tailwinds for stocks in 2023. In particular, we favor dividend-growers, an area where relatively higher income can help offset price return volatility.

    • Nuveen

      Geographically, we prefer US stocks (especially large caps) relative to other markets, as they offer better opportunities for both defensive positioning and growth. Across market sectors, we like healthcare as a relatively stable area and see opportunities in REITs, which offer a combination of solid fundamentals and attractive valuations. We also think the materials sector should benefit from easing inflation and energy should hold up well. We’re less favorable toward higher growth areas, including technology and communications services that are likely to struggle amid a “higher for longer” interest rate environment.

    • Nuveen

      Perhaps our highest-conviction collective view is our preference for infrastructure investments, particularly public infrastructure. Regulated utility revenue tends to be relatively decoupled from the economy and can experience growth from rising capital costs and policies related to energy transition and the Inflation Reduction Act.

    • Pictet Asset Management

      Dollar weakness. Slower growth. A big drop in inflation. Muted equities. Bullish bonds. And a China rebound. All of this spells out the need for investors to remain cautious on risk assets – particularly through the first half of the year.

    • Pictet Asset Management

      At the same time, we expect inflation to slow sharply, from a global peak of 8.3% to 3.5% by the end of 2023. That will be enough for major central banks to end their tightening cycles, led by the US Federal Reserve, but not enough for them to start cutting rates. We see Fed funds peaking at 4.75%, with an end to its quantitative tightening program in the third quarter of the year. We see the ECB taking over as the major source of policy tightening as the Fed’s slows.

    • Pimco

      As we navigate a period of elevated inflation and an economic slowdown, our starting point is one of caution. Pimco’s business cycle models forecast a recession across Europe, the UK, and the US in the next year, and the major central banks are pressing ahead with policy tightening despite increasing strain in financial markets.

    • Pimco

      Our base case of an economic slowdown or recession would bring demand destruction and ease inflationary pressures, which also implies that the US Fed funds rate may peak in early 2023.

    • Pimco

      As a recession begins and inflation slows, duration is likely the first asset class to be poised for outperformance, especially in rate-sensitive countries like Australia and Canada as well as select emerging markets that are ahead in the hiking cycle.

    • Principal Asset Management

      2023 is sizing up to be a better year for some segments of the market than 2022. Inflation and central bank policy will likely continue being a key focus for investors. Yet, while persistently restrictive monetary policy and the resulting US recession will weigh on the broad equity market outlook, it implies opportunities for both core fixed income and real assets.

    • Robeco

      In our base case, 2023 will be a recession year that – once the three peaks in inflation, rates and the dollar have been reached – will ultimately contribute to a considerable brightening of the return outlook for major asset classes. But we first need to brace for more pain in the short term.

    • Robeco

      We think that the belief in central bankers’ ability to prevent cyclical downturn is flawed. Instead, we expect a hard landing. Risks are tilted to the downside for the 2023 consensus of US annual real GDP growth of 0.8%. As recessions tend to be highly disinflationary, we believe this will take the sting out of inflation.

    • Robeco

      With core inflation still well above target in the first half of 2023, central bankers will likely stretch the pause after the hiking cycle and be reluctant to cut interest rates, even in the face of a US recession.

    • Robeco

      For the euro zone, the consensus of 0.4% real GDP growth in 2023 is fairly consistent with leading indicators like decelerating broad money growth in the region. But we flag the risk of excess tightening by the ECB, especially to get imported inflation under control.

    • Schroders

      Investment-grade credit and short-term high-yield bonds with sound fundamentals can be two sensible choices for exposure in investment portfolios in the year ahead. In addition, US TIPS can be included as a tool for protection against inflation.

    • Societe Generale

      The impact of tighter monetary policy is likely to be reflected in lackluster earnings. Inflation has likely peaked already, and the trajectory of monetary policy is unlikely to be more hawkish than what the market is currently pricing in, in our view.

    • State Street

      While aggressive Fed policy has led to some improvement, defeating inflation will take some time.

    • State Street

      Although markets are projecting rates to decline by late 2023, central banks are likely to remain plenty aggressive in the near term. Until the Fed’s battle against inflation turns less aggressive, the elevated yields in defensive short-duration sectors may help investors balance income and total return in order to preserve capital.

    • T. Rowe Price

      The global economy has passed from decades of declining interest rates into a new regime marked by persistent inflationary pressures and higher rates. Regime change clearly presents risks. But markets may have overreacted to some of those risks in 2022, creating attractive potential opportunities for investors willing to be selectively contrarian.

    • T. Rowe Price

      The balance between central bank tightening, high inflation, and slowing growth could produce rate volatility. Higher yields, especially for high yield bonds, are supported by strong fundamentals and can help provide a buffer against credit weakness.

    • T. Rowe Price

      Cheaper valuations reflect the current challenges from high inflation, recession risks, and an energy crisis in Europe. An easing of these headwinds and continued fiscal support could provide upside over the course of 2023. Valuations are compelling, but high energy costs and weakening manufacturing activity make a European recession likely. We expect the ECB’s resolve on fighting inflation to ease as economic growth wanes in 2023.

    • T. Rowe Price

      US investment grade yields could peak in the first half of 2023 as inflation cools, allowing the Fed to moderate policy. Slowing growth and inflation could support longer‑duration bonds. Credit may prove resilient thanks to strong fundamentals.

    • TD Securities

      2023 will see a balancing act from central banks, as they maintain restrictive policy to bring inflation down against a backdrop of recessions across most of the G-10. Inflation remains above target all year, and we anticipate a global recession.

    • TD Securities

      We expect a decline in long end rates of global bond curves; the front end should be anchored by hawkish central banks paralyzed by still too-high inflation.

    • Truist Wealth

      We estimate inflation will trend towards 3%-4%, as measured by the Consumer Price Index. A slowing economy should result in easing inflation, albeit remaining above the pre-pandemic range.

    • Truist Wealth

      Historically, earnings around recessions have averaged a drop of almost 20%. We don’t necessarily believe that earnings have to fall that far given how well corporations have navigated the pandemic and the fact that elevated inflation raises nominal sales figures, but there remains downside risk.

    • Truist Wealth

      The Fed will likely finish raising rates in the first half of 2023, with the Fed funds rate reaching roughly 5%. The Fed’s singular focus on curbing generationally-high inflation will continue next year, likely holding policy rates at elevated levels until core inflation and job creation ease markedly and consistently.

    • Truist Wealth

      In the coming year, we expect inflation fears to evolve into growth concerns, particularly in Europe. The European Central Bank will likely be less aggressive in their policy response given Europe’s challenging macro backdrop. This would cap upward moves in euro zone yields. As a result, strong foreign demand for the relative yield advantage and safe-haven quality offered by US government debt should apply some downward pressure on US yields.

    • UBS

      For the US, we now expect near zero growth in both 2023 and 2024 (roughly 1 percentage point below consensus), and a recession to start in 2023. Combined with inflation falling rapidly (50 basis points below consensus), the Fed would cut the Federal Funds rate down to 1.25% by early 2024. The speed of that pivot will drive every asset class next year.

    • UBS

      The economic weakness we forecast is widespread but it is not deep. It would be enough, however, to push unemployment 100 basis points higher in DM, and 200 basis points in the US (to 5.5%). Combined with inflation coming down rapidly in the coming quarters, that creates a much stronger central bank pivot than is priced by the market: about 200 basis points in DM cuts by mid-2024 (and nearly 400 basis points in the US).

    • UBS

      The negative payoff from getting our disinflation call wrong is large. The sweetest spot for market valuations (high), volatility (low) and bond equity correlations (negative) has been when core inflation was around the third decile of its 50-year distribution, an average rate of 1.8% year-on-year. That is roughly where we expect it to land in 2024. If we’re wrong, and it lands, say, at the sixth decile (about 2.8%), the valuation adjustment needed (CAPE from 28 currently to sub-20) would see the S&P 500 at 2,550. Few places to hide then, but dollar assets, particularly the US Value trade, should do least worst.

    • UBS

      If inflation is meaningfully higher (100 basis points) than our forecast, global growth would be 50-70 basis points lower and policy rates 100 basis points higher (160 basis points in DM). A global housing downturn does more damage (110 basis points additional downside to growth). Rapid de-escalation of the Russia/Ukraine war would add about 0.5 percentage points to our global growth forecast.

    • UBS

      We expect inflation to ease and therefore see the bond-equity correlation normalizing, but equity returns themselves should be modest. We calculate equity-bond allocations based on risk parity, active risk parity and simple mean variance approaches. The recommended equity-bond portfolio is much closer to 35-65 than 60-40.

    • UBS Asset Management

      We are neutral on government bonds. The Fed is likely to be slow in ending or reversing its hiking cycle as long as the US labor market bends but does not break, while signs that overall inflation has peaked may reduce the odds of overtightening. However, price pressures are likely to remain stubbornly high – a side effect of a US labor market that refuses to crack.

    • UniCredit

      Inflation is set to decelerate meaningfully in 2023. The Fed and the ECB are likely to finish their tightening cycle by early next year and to start cutting rates in 2024.

    • UniCredit

      The ongoing sharp monetary tightening and upcoming recession pose significant downside risks. However, evidence of slowing core inflation, peaking official rates and signs of economic recovery would pave the way for more risk taking in the second half.

    • UniCredit

      Long-dated yields are likely to be close to their peaks. Convincing signals that inflation is easing will give central banks a green light to rein in some of the recent tightening, leading to a bull market revival and curve steepening.

    • Vanguard

      Our base case is a global recession in 2023 brought about by the efforts to reduce inflation.

    • Vanguard

      Growth is likely to end 2023 flat or slightly negative in most major economies outside of China. Unemployment is likely to rise over the year but nowhere near as high as during the 2008 and 2020 downturns. Through job losses and slowing consumer demand, a downtrend in inflation is likely to persist through 2023.

    • Vanguard

      We don’t believe that central banks will achieve their targets of 2% inflation in 2023, but they will maintain those targets and look to achieve them through 2024 and into 2025 — or reassess them when the time is right.

    • Wells Fargo

      Our base case scenario is for the Federal Reserve to deliver a bit more tightening than what the market is pricing. Meanwhile, we expect the Bank of England and European Central Bank to not hike as much as implied by the market. Inflation falls fairly quickly in the US, and but drops even faster in several other large economies. US core CPI drops below 3% annualized, but with a wide confidence interval around this forecast.

    • Wells Fargo

      Stagflation is the biggest macro risk, in our opinion, and central bank responses would be tough to predict. Some policymakers likely would opt to put their economies into the deep freeze so they could squelch inflation.

    • Wells Fargo

      The ECB and BOE have already shown more concern for slowing growth vs. high inflation, and seem more inclined to pivot away from inflation fighting in a stagflation scenario. In contrast, the Fed’s bar for pivoting seems higher. Private debt has been more contained in the US relative to its peers, but debt has still risen sharply over the last few decades.

    • Wells Fargo Investment Institute

      We expect a U.S. recession in the first half of 2023, as well as a continued global economic slowdown, as last year’s hawkish monetary policy and money growth slowdown works with a lag. That should drive down corporate earnings growth and create important inflection points for investors over the next nine to 12 months.

    • Wells Fargo Investment Institute

      Wells Fargo Investment Institute expects a recession in early 2023, recovery by midyear, and a rebound that gains strength into year-end. Nevertheless, full-year US economic growth and inflation targets may reflect mostly the recession.

    • Wells Fargo Investment Institute

      We believe that a recession and unwinding inflationary shocks of the past 18 months will allow inflation to decline to under 3% on a year-over-year basis by year-end 2023.

  5. MONETARY POLICY
    • Amundi Asset Management

      In the US, the Fed’s aggressive tightening has increased the risk of recession in the second half, while again failing to dent inflation.

    • Amundi Asset Management

      Inflation will stay stubbornly high through most of 2023. Central banks will continue their “whatever it takes” policy to avoid a 1970-style crisis. Tightening has further to go, but at a slower pace than in 2022. The level of the Fed terminal rate will be critical, raising the odds of a US recession if it ends up close to 6%.

    • Amundi Asset Management

      “Bonds are back” with a focus on high-quality credit, while paying attention to FX in a world of diverging policies, as well as to liquidity risks and corporate leverage.

    • AXA Investment Managers

      A policy-induced recession looks like the price to pay to get inflation back under control after a peak in late 2022. While we are confident that by the middle of 2023 the world economy will start improving again, we would warn against any excessive enthusiasm. Beyond the cyclical recovery, many structural questions will remain unanswered.

    • AXA Investment Managers

      The Fed won’t want to cut rates as quickly as the market is currently pricing (second half of 2023) since they will want to be satisfied that they have properly broken the back of inflation. The price to pay for this will be a recession in the first three quarters of 2023 in the US which will trigger the usual adverse ripple effects over the entirety of the world economy next year. Any recession looks set to be mild, though our US GDP outlook of -0.2% and 0.9% for 2023 and 2024 is lower than consensus. Interest rates appear close to a peak – we estimate 5% – and are likely to remain at that level until 2024.

    • AXA Investment Managers

      For now, it is an environment that supports exposure to the shorter maturity part of bond markets. Such strategies currently provide the highest yields seen for years. Extending duration along the curve also locks in better yield and provides optionality to recognize capital gains once markets start to anticipate central banks easing. Our base case is that this is unlikely until late 2023 or 2024, but markets tend to look forward to these events.

    • Bank of America

      With inflation, the dollar and Fed hawkishness peaking in the first half of 2023, markets are expected to tolerate more risk later in the year. The S&P 500 typically reaches its bottom six months ahead of the end of a recession, and as a result, bonds appear more attractive in the first half of 2023, while the backdrop for stocks should be better in the later half. We expect the S&P to end the year at 4,000 and S&P earnings per share to total $200 for the year.

    • Bank of America

      A recession is all but inevitable in the US, euro area and UK. Expect a mild US recession in the first half of 2023 with a risk that it starts later. Europe likely sees recession this winter with a shallow recovery thereafter as real incomes and likely overtightening pressure demand.

    • Bank of America

      US rates stay elevated but expect a decline by year end 2023. The yield curve is expected to dis-invert and rates volatility should fall. Both two-year and 10-year US Treasuries should end 2023 at 3.25%. Sectors hurt by rising rates in 2022 may benefit in 2023.

    • Bank of America

      After a volatile start to 2023, emerging markets should produce strong returns. Once inflation and rates peak in the US and China reopens, the outlook for emerging markets should turn more favorable. China equities will likely strengthen due to a reversal in both zero-Covid and property tightening.

    • Bank of America

      The end of Fed hikes and more conservative corporate balance sheet management lead to a positive backdrop for credit: Weaker prospects for growth and higher rates lead managements to shift prioritization to debt reduction from share buybacks and capex. Total returns of approximately 9% are expected in investment grade credit in 2023 in addition to a default rate peak of 5%, far below past recessions.

    • Barclays

      This year’s aggressive rate hikes should hit the world economy mainly in 2023. We expect advanced economies to slip into recession, and we forecast global growth at just 1.7%, one of the weakest years for the world economy in 40 years. We recommend bonds over stocks, as well as a healthy allocation to cash.

    • Barclays

      Inflation is unlikely to fall quickly in 2023, meaning that monetary policy will have to be restrictive, even with economies in recession. Europe’s energy crunch and US sanctions on China are sources of particular concern.

    • Barclays

      We recommend bonds over stocks; equities are likely to bottom out only in the first half next year. The Fed funds rate is headed over 4.5%, so cash is a low-risk alternative that should drag on financial market valuations.

    • BCA Research

      Inflation will come down rapidly as pandemic and war-induced dislocations fade, the mix of spending between goods and services normalizes, and the aggregate demand curve slides down the steep side of the aggregate supply curve in response to the lagged effects of tighter financial conditions.

    • BlackRock Investment Institute

      The new regime of greater macro and market volatility is playing out. A recession is foretold; central banks are on course to overtighten policy as they seek to tame inflation. This keeps us tactically underweight developed market equities. We expect to turn more positive on risk assets at some point in 2023 – but we are not there yet. And when we get there, we don’t see the sustained bull markets of the past.

    • BlackRock Investment Institute

      Central bankers won’t ride to the rescue when growth slows in this new regime, contrary to what investors have come to expect. We see central banks eventually backing off from rate hikes as the economic damage becomes reality. We expect inflation to cool but stay persistently higher than central bank targets of 2%.

    • BlackRock Investment Institute

      We are underweight nominal long-term government bonds in each scenario in this new regime. This is our strongest conviction in any scenario. We think long-term government bonds won’t play their traditional role as portfolio diversifiers due to persistent inflation. And we see investors demanding higher compensation for holding them as central banks tighten monetary policy at a time of record debt levels.

    • BNP Paribas

      Despite a likely steep fall in inflation next year, stubborn price pressures look set to keep the US Federal Reserve and the European Central Bank hiking into a recession in the first quarter of 2023.

    • BNP Paribas

      We see the first quarter of 2023 as a turning point for US and euro zone government bond markets due to peaks in both central-bank policy rates and net supply net of QE/QT. In terms of fundamentals, the global growth downturn and disinflation point to lower yields throughout 2023.

    • BNY Mellon Investment Management

      Output is likely to fall in 2023, with risks to the downside. Inflation will probably fall too, but relatively slowly, remaining above target for some time, with risks to the upside. As a result, despite recession, interest rates are set to rise further, though with risks to the downside. All this stands in stark contrast to the “soft landing” narrative.

    • BNY Mellon Investment Management

      Is it time to call the bottom and go overweight equities? According to our outlook – no. There’s a stronger case for increasing allocations to fixed income, which does well in a couple of diametrically opposed circumstances: first, if there’s a soft landing and rates don’t have to rise nearly as much as markets currently expect. Or second, if rates do rise and the economy goes into recession, curves invert further and eventually fall.

    • BNY Mellon Investment Management

      Within fixed income, we prefer developed market sovereigns on the back of the nascent disinflationary trend, real policy rates nearing positive territory, and several central banks downshifting the pace of rate hikes.

    • BNY Mellon Investment Management

      Inflation stays persistent in advanced economies – brought on by a wage-price spiral in the US and prolonged upstream price pressure in Europe. Fed responds hawkishly, with the ECB not far behind. Tightening financial conditions and erosion of real incomes results in a sizable downturn in Europe in the first half, with US following a quarter or two later.

    • Brandywine Global Investment Management

      Recession odds increase significantly if Fed Chair Powell remains dogmatic on the need to create labor market slack. However, he has proven himself impressionable when it comes to the data. A pause in rate hikes seems very probable, especially if the data show a steep and deep decline in inflation.

    • Brandywine Global Investment Management

      We favor having more duration exposure in Treasuries as there is more relative tightening of financial conditions in the US than in European bonds or Japanese government bonds.

    • Brandywine Global Investment Management

      The powerful rally in the dollar in 2022 was driven by an alignment of factors that will not persist in 2023. The greenback is expensive, and relative growth prospects point to a weaker dollar next year. Relative monetary policy will also tighten more outside the US, notably in Europe. A weaker greenback will allow for some stability in EM currencies, which we think are broadly undervalued.

    • Brandywine Global Investment Management

      US equities remain our biggest country underweight. We think there is more bad news to come, and market expectations and valuations are still too optimistic. It is clear to everyone, except the central bankers, that the Fed is on course for another major policy error. They may succeed in curing inflation but are also likely to seriously hurt the patient in the process. We are content to stay defensive and underweight the US until valuations offer a greater margin of safety, or the Fed alters its monetary policy.

    • Carmignac

      We expect the US economy to enter a recession later this year but with a much sharper and longer decline in activity than anticipated by the consensus. Faced with inflation, the Fed will have to create the conditions for a real recession with an unemployment rate well above 5%, compared with 3.5% today, which is not currently envisaged by the consensus

    • Carmignac

      On the sovereign bond side, weaker economic growth is generally associated with lower bond yields. However, given the inflationary environment, while the pace of tightening may slow or even stop, it is unlikely to reverse soon.

    • Citi

      We are currently at a spot in the US business cycle where fears of inflation and the Fed are fading, but fears of a recession are not yet pronounced enough to lead to downside in equity markets. As we enter 2023, we expect US recession fears to become the driver. We remain underweight assets that are likely to underperform into a US recession.

    • Citi

      We think that the Fed will keep going, even if at a shallower pace, which in the end means that the peak in US rates may only come in early 2023, rather than being already in. We also think that recession fears should eventually undermine risky assets again, especially in the US.

    • Citi

      The hurdle for the Fed to pause is obviously lower than for the Fed to cut. And duration will trade well when the Fed is almost done hiking. Cuts will not be required. As such we are closer to buying bonds than buying equities. But for now we remain neutral on US rates, and instead buy in EM.

    • Citi

      We prefer EM rates because there are several central banks that are already or almost done hiking, and will eventually cut, which is the sweet spot in the cycle. While US rates are still going up, this is a “B trade”, rather than an “A trade”.

    • Citi

      Our quant corner finds macro-economic conditions in stagflationary territory and is bearish risky assets. Using our economic forecasts, next year could be brighter, as inflation is likely peaking and central bank hiking cycles more mature, setting the stage for overweights in credit and bonds.

    • Citi Global Wealth Investments

      We believe that the Fed’s rate hikes and shrinking bond portfolio have been stringent enough to cause an economic contraction within 2023. And if the Fed does not pause rate hikes until it sees the contraction, a deeper recession may ensue.

    • Citi Global Wealth Investments

      We need to get through a recession in the US that has not started yet. We believe that the Fed’s current and expected tightening will reduce nominal spending growth by more than half, raise US unemployment above 5% and cause a 10% decline in corporate earnings. The Fed will likely reduce the demand for labor sufficiently to slow services inflation just as high inventories are already curtailing goods inflation.

    • Citi Global Wealth Investments

      When the Fed does finally reduce rates for the first time in 2023 – an event that we expect after several negative employment reports – it will do so at a time when the economy is already weakening. We think this will mark a turning point that will portend the beginning of a sustained economic recovery in the US and beyond over the coming year.

    • Citi Global Wealth Investments

      We expect that as 2023 progresses, opportunities to increase portfolio risk will evolve. Once interest rates peak, we will likely shift toward non-cyclical growth equities. These have already repriced lower, and we expect them to begin performing once more before cyclicals.

    • Citi Global Wealth Investments

      In our view, 2023 will potentially be a great vintage for alternative investments. Higher interest rates have caused a repricing of private assets amid much higher borrowing costs. As such, specialist managers will be able to deploy capital into areas of distress and illiquidity.

    • Comerica Wealth Management

      In 2023, we envision an environment of moderating but persistent price pressures that will keep monetary policymakers on a steady, but less aggressive, tightening path. Our base case calls for mild recession early in the year and steady market interest rates.

    • Comerica Wealth Management

      We expect a retest of the October lows (around 3,500) in the S&P 500 Index, before investors price in a policy response and begin discounting recovery in late 2023 and early 2024. This scenario should experience flat profits in 2023 and expectations of 5% earnings gains in 2024, and we would view the S&P 500 as fairly valued within the range of 4,100-4,200 within the next 12 months.

    • Comerica Wealth Management

      We remain cautious on longer-term US Treasuries in the coming months as persistently high inflation will likely lead to further volatility as investors demand a higher-term premium. We believe shorter-dated Treasuries, however, are closer to pricing in a peak for policy rates and offer relatively attractive income opportunities.

    • Comerica Wealth Management

      In the municipal bond space, we favor investment grade over high yield offerings, particularly given their attractive tax-equivalent yields. The market for mortgage-backed securities, however, faces further challenges due to the combination of a tighter Fed, rising mortgage rates, a slowdown in housing, and the end of monetary support.

    • Comerica Wealth Management

      Given our base case, the mild-recession scenario, as well as the possibility for a hard landing scenario, it is important for investors to remain cautious and not get too aggressive during bear market rallies. We anticipate heightened market volatility in the months and quarters ahead until the market gets comfortable with the potential for peaks in market interest rates, the dollar, and monetary policy along with troughs in GDP, P/Es, and EPS.

    • Comerica Wealth Management

      In 2023, we look for a resumption of US dollar strength and a renewed bid for oil as geopolitical tensions remain elevated. Commodities including copper and gold are unlikely to gain traction until the Fed’s tightening campaign abates.

    • Commonwealth Financial Network

      We believe inflation is set to fall meaningfully throughout the coming year as the economy slows due to the Fed’s aggressive interest rate hikes. We’ve already seen positive signs that drivers of inflation in key economic sectors have improved or rolled over. If that continues, without kicking off a recession, the Fed just may achieve its elusive soft landing.

    • Commonwealth Financial Network

      As a result of the 2022 selloff, fixed income asset classes may now offer some of the most attractive valuations we’ve seen in decades. The Fed has been very vocal about its goal of bringing inflation under control. If it meets its objective, which appears likely, interest rates should stabilize, which could support a number of segments in the fixed income universe.

    • Commonwealth Financial Network

      Going forward, it’s reasonable to believe the US dollar will remain strong. But an equally compelling argument could be made that its current strength will not be sustained throughout 2023. If the Fed cools down inflation and curbs interest rate increases, investors could see the dollar stabilize—or possibly weaken—against other currencies. Several wild cards need to be considered, including the ongoing war in Ukraine, elevated oil prices, and above-average inflationary readings for a prolonged period. Still, our current expectation is that the greenback will not cause as many headwinds for international equity allocations as it did in 2022.

    • Credit Suisse

      We expect the euro zone and UK to have slipped into recession, while China is in a growth recession. These economies should bottom out by mid-2023 and begin a weak, tentative recovery – a scenario that rests on the crucial assumption that the US manages to avoid a recession. Economic growth will generally remain low in 2023 against the backdrop of tight monetary conditions and the ongoing reset of geopolitics.

    • Credit Suisse

      Inflation is peaking in most countries as a result of decisive monetary policy action, and should eventually decline in 2023. Our key assumption is that it will remain above central bank targets in 2023 in most major developed economies, including the US, the UK and the euro zone. We do not forecast interest-rate cuts by any of the developed market central banks next year.

    • Credit Suisse

      We see 2023 as a tale of two halves. Markets are likely to first focus on the “higher rates for longer” theme, which should lead to a muted equity performance. We expect sectors and regions with stable earnings, low leverage and pricing power to fare better in this environment. Once we get closer to a pivot by central banks away from tight monetary policy, we would rotate toward interest-rate-sensitive sectors with a growth tilt.

    • Credit Suisse

      The dollar looks set to remain supported going into 2023 thanks to a hawkish US Federal Reserve and increased fears of a global recession. It should stabilize eventually and later weaken once US monetary policy becomes less aggressive and growth risks abroad stabilize. We expect emerging market currencies to remain weak in general.

    • Credit Suisse

      We expect the environment for real estate to become more challenging in 2023, as the asset class faces headwinds from both higher interest rates and weaker economic growth. We favor listed over direct real estate due to more favorable valuation and continue to prefer property sectors with strong secular demand drivers such as logistics real estate.

    • Deutsche Bank

      We read the Fed and ECB as being absolutely committed to bringing inflation back to desired levels within the next several years. Although the costs in doing so may be lower than in the past, it will not be possible to do so without at least moderate economic downturns in the US and Europe, and significant increases in unemployment.

    • Deutsche Bank

      The current mix of aggressive central bank rate hiking to deal with elevated inflation, geopolitical uncertainty and elevated commodity prices, and impending recession in the euro area and US has been a toxic mix for emerging markets. We see this sector remaining under pressure well into 2023, but then beginning to trend more positive later in the year as inflation begins to recede and central bank policy begins to reverse both domestically and by the Fed.

    • Deutsche Bank

      We think the Fed and ECB will succeed in their missions as they stick to their guns in the face of what is likely to be withering public opposition as unemployment mounts. The moderate cost of doing so now will be much lower than failing to do so and having to deal with a more severely ingrained inflation problem down the road. Doing so now will also set the stage for a more sustainable economic and financial recovery into 2024.

    • Deutsche Bank

      We see the risks still weighted toward more severe recessions being needed to get the disinflation job done successfully, and we assume the Fed and ECB will be up to the task if needed.

    • DWS

      We think central banks will keep interest rates high for longer than markets currently expect.

    • DWS

      We expect the US Federal Reserve to raise key interest rates to between 5% and 5.25% next year, while in the euro zone the key rate is likely to rise to 3%. We do not currently see a rate cut next year.

    • Fidelity

      Markets want to believe that central banks will blink and change direction, negotiating the economy towards a soft landing. But in our view, a hard landing remains the most likely outcome in 2023. A recession is likely in the US and near certain in Europe and the UK.

    • Fidelity

      Rates should eventually plateau, but if inflation remains sticky above 2%, they are unlikely to reduce quickly even if banks take other measures to maintain liquidity and manage increasingly challenging debt piles.

    • Fidelity

      If the Fed continues to raise rates, an even stronger dollar could accelerate the onset of recession elsewhere. Conversely, a marked change in the dollar’s direction, potentially as its relative strength and confidence in monetary and fiscal policy making become an issue, could bring broad relief, and increase overall liquidity across challenged economies.

    • Fidelity

      In the US, the Fed appears set on raising rates significantly beyond neutral levels to bring inflation under control. We do not expect a pivot until there is a meaningful deterioration in hard data, especially inflation and the labor market. Although we do not expect it soon, when it does arrive, it should boost risky assets such as equities and credit, as well as government bonds.

    • Fidelity

      We have repeatedly argued that the financial system cannot take positive real rates for any material length of time (due to high levels of debt) before financial stability becomes an issue. Given liquidity and assets are already under considerable pressure, the system could start to crack. There is a risk that if the Fed stays true to its current word and doesn’t stop until inflation is back near 2%, a “standard” recession could turn into something worse.

    • Fidelity

      As the tightening cycle slows and rates stabilize, opportunities in real estate should begin to emerge for investors prepared to take them.

    • Franklin Templeton

      Our base case is inflation will further recede as supply chain pressures ease and central banks will remain committed to tighter policy. However, the result of this policy is likely to be a slowing of the economy.

    • Franklin Templeton

      Expensive equity prices and the potential for a peak in interest rates have been driving a preference toward fixed income. We expect investors to search for quality and perhaps increase duration in 2023. Extending duration may provide compelling income opportunities, and US Treasuries could be the core for building duration.

    • Franklin Templeton

      Bonds will likely rally as the US Federal Reserve achieves its goals, whether the US economy’s landing is soft or hard. Equities are less likely to perform as well — unless the landing is soft. Otherwise, falling profits will offset falling bond yields and equities are unlikely to advance. That outcome is also a recipe for elevated equity volatility.

    • Franklin Templeton

      Historically, US commercial real estate investment has performed favorably in periods of rising interest rates and inflation. Current macro risks and market dislocations may create attractive buying opportunities over the next 12–18 months in some sectors of commercial real estate.

    • Generali Investments

      We see the Fed peak at 5% in March, but the risks lie towards the Fed hiking more as consumer demand and capex initially prove resilient. We do not see Fed rate cuts before the fourth quarter, i.e. not as fast as the implied curve is suggesting.

    • Generali Investments

      Equity multiples dropped in 2022 but appear too high still relative to real bond yields. Earnings consensus for 2023 (single digit positive) also appears too optimistic. Our sector/style preference is mixed, but cyclicals look rich at the turn of the year, while the 2022 outperformance of value will run out of steam along with bond yields. Over 12 months, thanks to bottoming earnings, the end of central bank tightening, and a continuing fall in bond volatility, we expect positive total returns of 3% to 6%.

    • Generali Investments

      The fundamentally overvalued dollar is past peak. The Fed’s final hike looming for early spring 2023 is set to reduce rates uncertainty (a previous dollar boost) and path the way to narrowing yield gaps vs major peers. Initially, the transition is likely to prove volatile, though. The euro is still to feel the pain from recession and the energy crunch, leaving the currency shaky near term. But fading recession forces by early spring may mark the start of ensuing capital inflows to the euro area and a more sustained euro recovery.

    • Goldman Sachs

      The US should narrowly avoid recession as core PCE inflation slows from 5% now to 3% in late 2023 with a 0.5 percentage point rise in the unemployment rate. To keep growth below potential amidst stronger real income growth, we now see the Fed hiking to a peak of 5-5.25%. We don’t expect cuts in 2023.

    • Goldman Sachs

      The euro area and the UK are probably in recession, mainly because of the real income hit from surging energy bills. But we expect only a mild downturn as Europe has already managed to cut Russian gas imports without crushing activity and is likely to benefit from the same post-pandemic improvements that are helping avoid US recession. Given reduced risks of a deep downturn and persistent inflation, we now expect hikes through May with a 3% ECB peak.

    • Goldman Sachs

      Markets are now pricing in a more dovish Federal Reserve, signalling an expectation that the US central bank will begin lowering its funds rate by the end of next year. Our economists, by contrast, don’t expect any rate cuts in 2023. If the US economy turns out to be more resilient than anticipated and inflation stickier in 2023, stock markets and Treasuries could fall in price.

    • Goldman Sachs

      In the near term, bonds could remain more of a source of risk than of safety: policy rates could end up going higher, and staying there longer, than investors are prepared for.

    • Goldman Sachs

      With inflation still running hot, central banks are more likely to try to cool economic growth and tighten financial conditions than to boost them. And if they don’t fight inflation, there’s a risk that longer-dated bond yields will increase anyway because of rising long-term inflation expectations.

    • Goldman Sachs

      We see potential for bonds to be less positively correlated with equities later in 2023 and provide more diversification benefits. But until central banks stop hiking and inflation normalizes further, they are unlikely to be a reliable buffer for risky assets.

    • HSBC

      We think markets have become too complacent both in regard to the inflation and Fed outlook and the growth outlook. Virtually all of our cyclical leading indicators are still pointing to much more weakness on the growth side in the coming two to three quarters. The point here is that these signals are no longer confined to just one particular area of the economy. The weakness is much more broad-based now, which gives us even higher conviction in our call. We remain decidedly risk-off for the first half of 2023.

    • HSBC

      Diversification benefits are very scarce in an environment that is driven so much by one single factor (inflation/the Fed). One of the only asset classes that has a high-enough loss threshold in both a recession and a sticky inflation/labor market scenario is probably investment-grade credit.

    • HSBC Asset Management

      Our “house view” continues to reflect an overall cautious stance. We do not advocate an aggressive use of risk budgets. 2023 is going to be a year about the macro cycle. We have likely reached peak central bank hawkishness as the headline inflation rates begin to cool and given the extent of tightening so far. Economies are in different situations or “parallel worlds,” which should create some relative-value opportunities for global investors in 2023.

    • HSBC Asset Management

      Inflation should still be persistently high for much of 2023, and on the back of rapid tightening by the Federal Reserve we are forecasting a recession for the US in 2023 – a corporate profits recession in the first half of the year, followed by a GDP recession.

    • HSBC Asset Management

      A turnaround could follow later in the year amid cooling inflation – aided by weaker labor and housing markets – which means central banks can pause rate hikes, with even the prospect of rate cuts later in the year. With better visibility on the policy and economic outlook, investor sentiment will recover from rock bottom levels to take advantage of much improved valuations in riskier asset classes such as equities and high-yield corporate bonds.

    • Invesco

      Our base case anticipates inflation moderating, resulting in a pause in central bank tightening early in 2023. This enables an economic recovery to unfold later in the year.

    • Invesco

      US and European central banks are tightening despite slowing growth, signs that inflation is peaking and the fact that financial conditions have already tightened substantially. We expect these factors to eventually turn the tide, leading to a pause in rate hikes materializing in early 2023.

    • Invesco

      A global recession remains a significant possibility, with the potential for higher unemployment, defaults, and a deterioration of earnings. However, we believe that risk is still below 50%, based on our expectation that central banks pause tightening soon.

    • Invesco

      As interest rates are expected to peak and begin falling, longer-duration assets become favorable. Higher-quality and defensive assets are preferable to their riskier counterparts.

    • Invesco

      The strong-dollar cycle will likely cease as the US Federal Reserve signals a pause in its tightening cycle. Given how expensive the dollar has become, we would expect it to weaken once the Fed pivots.

    • JPMorgan

      The good news is that central banks will likely be forced to pivot and signal cutting interest rates sometime next year, which should result in a sustained recovery of asset prices and subsequently the economy by the end of 2023. The bad news is that in order for that pivot to happen, we will need to see a combination of more economic weakness, an increase in unemployment, market volatility, decline in levels of risky assets and a fall in inflation.

    • JPMorgan

      Within developed markets, the UK is still our top pick. As for EM, its recovery is mostly linked to China. Tactically, the Asia reopening trade led by China is overdue and the activity hurdle rate is very easy, with further policy support likely. We expect around 17% upside for China by the end of 2023.

    • JPMorgan

      In currency markets, further dollar strength is still expected in 2023, but of a lower magnitude and different composition than in 2022. The Fed pause should give the dollar’s rise a breather. Unlike in 2022, lower-yielding currencies like the euro are expected to be more insulated as central banks pause hikes and the focus shifts to addressing slowing growth — but this in turn makes high-beta, emerging market currencies more vulnerable. Weak growth outside the US should also remain a pillar of dollar strength in 2023.

    • JPMorgan Asset Management

      Inflation may not be heading back quickly to 2%, but we suspect that the central banks will be happy to pause, so long as inflation is headed in the right direction.

    • Macquarie Asset Management

      As supply chain pressures ease and aggregate demand weakens, inflation is likely to moderate during 2023 but also remain above central bank targets of about 2%.

    • Macquarie Asset Management

      China should see a steady acceleration in growth over the course of 2023 if policy easing steps up a gear, as seems likely.

    • Morgan Stanley

      In an environment of slow growth, lower inflation and new monetary policies, expect 2023 to have upside for bonds, defensive stocks and emerging markets.

    • Morgan Stanley

      Bonds — the biggest losers of 2022 — could be the biggest winners in 2023, as global macro trends temper inflation next year and central banks pause their rate hikes. This is particularly true for high-quality bonds, which historically have performed well after the Federal Reserve stops raising interest rates, even when a recession follows.

    • Morgan Stanley

      Valuations are clearly cheap, and cyclical winds are shifting in favor of emerging markets as global inflation eases more quickly than expected, the Fed stops hiking rates and the dollar declines. The MSCI EM, an index of mid and large-cap companies in 24 emerging markets, could see 12% price returns in 2023. EM debt could benefit from a combination of trends. Fixed-income strategists forecast a 14.1% total return for emerging market credit, driven by a 5% excess return and a 9.1% contribution from falling Treasury yield.

    • NatWest

      Whilst there are some tentative hints that policymakers are becoming less hawkish, we do not expect any policy “pivot” (i.e. rate cuts) in 2023. The scale and persistence of the inflation overshoot in 2022 is likely to have resulted in reaction functions becoming more reactive for policy easing. Policy rate cuts in the US, euro area and UK are not expected until 2024.

    • NatWest

      Any acceleration in growth will be somewhat back-loaded and gradual in the coming year. Growth is forecast to regain momentum in 2024 as inflation pressures recede and central banks ease monetary policy, albeit cautiously.

    • NatWest

      Peak policy rates are well priced but fade any rate cut rhetoric. We see rates rates on hold through 2023 at 5% in the US, 2.25% in Europe and 4.25% in the UK. A more gradual path to peak rates than markets are currently pricing should permit higher rates for longer.

    • NatWest

      In the US we see bullish steepening risks as markets price a dovish pivot in the second half. In Europe and the UK, we remain short duration due to heavy supply, quantitative tightening, region risk and weak demand themes. Bearish steepeners out to 10 years. In Japan we see a change of leadership at the BOJ creating flexibility in yield curve control.

    • NatWest

      Relative growth and relative policy were clear dollar supports in 2022, but each are set to turn in 2023 and we expect the dollar falls back to the pack, with increasing confidence by second quarter. CAD may weaken as a high beta USD. A more mature dollar rally opens long EM opportunities.

    • NatWest

      With the US expected to enter a recession starting in the first quarter and lasting through to the second, and with our expected terminal Fed funds rate of 5% well-priced, we look for yields to peak if they have not already—we see 10-year yields ending 2023 at 3.35%.

    • NatWest

      Raging inflation could have a damaging impact on the financial condition of many leveraged corporations in the leveraged asset class. Bond and loan prices already reflect much of the stress that could have a material impact on credit metrics. Investors should be mindful of the inevitable interest rate pivot from central banks.

    • NatWest

      Europe is already in recession. Inflation will slow and the ECB will slow with it. But inflation risks are on the high side. A second phase of inflation, permitted by recovery in the second half, is more likely than a downturn that leads to rate cuts. Bearish risks to longer-term rates form a long list. We target 2.75% in 10-year bunds. This contrasts with our US rates views. Buy five-year Treasuries vs 10-year bunds – a hybrid steepener that captures the more advanced Fed and our global steepening bias.

    • Ned Davis Research

      Tightening cycles to end in the first half of 2023. We see opportunities building in bonds, spread product, and cash. Once again, bonds should provide an effective hedge against equity risks in balanced portfolios.

    • Ned Davis Research

      It’s highly likely that the European economy fell into recession in the fourth quarter of 2022 due to the energy shock brought by Russia’s war and tighter monetary policy. We forecast a 0% to 0.5% growth rate for the euro zone in 2023, as the recession continues into next year. We expect the recession to be mild. The outlook, however, is uncertain and is almost entirely driven by energy.

    • Ned Davis Research

      Continued adjustment to pandemic imbalances, tight labor markets, and the risk of further supply shocks (either geopolitical or weather related) will likely see inflation rates remain above central bank targets through the end of 2023, indicating pivots are unlikely in the near-term.

    • Ned Davis Research

      Bonds could easily rally through yield support levels on evidence of recession, slowing inflation, and shifting policy. We raised our bond exposure to 100% of benchmark duration and are neutral on the yield curve. We are overweight Treasuries and MBS and underweight high yield, ABS and TIPS. We are marketweight everything else.

    • Neuberger Berman

      We think the next 12 months are likely to see this cycle’s peaks in global inflation, central bank policy tightening, core government bond yields and market volatility, as well as troughs in GDP growth, corporate earnings growth and global equity market valuations. But we do not believe this will mark a reversion to the post-2008 “new normal”. We see structural forces behind persistently higher inflation — and therefore a persistently higher neutral interest rate, a higher cost of capital and lower asset valuations.

    • Neuberger Berman

      We see bond investors standing up more strongly for their interests against policymakers. Markets are punishing policy inconsistencies between fiscal and monetary authorities within sovereigns; and excessive fiscal or monetary policy divergences between sovereigns. We think core government bond yields may be range-bound where policies are consistent, but potentially higher and more volatile where policies are inconsistent.

    • Neuberger Berman

      Despite the pace of policy adjustment and attendant market rate moves, outside the UK central banks have so far not had to intervene to maintain market liquidity—but an emergent policy conflict remains a tail risk for bond markets in 2023.

    • Northern Trust

      Northern Trust expects 2023 to be a turbulent year as conditions pivot from inflation and monetary policy fears to a weak global economy, but the firm also expects market volatility to somewhat temper due to lower inflation and a pause in central bank interest rate increases. A reduction in rates is not seen as likely. We see downside risk from lower corporate profits and revenues, but with upside potential from better sentiment.

    • Northern Trust

      In equities, risks surrounding fundamentals are tilted to the downside given the extent of cumulative central bank tightening. Pockets of economic durability should limit a US earnings slowdown, while monetary policy offers a bit more support elsewhere. Keeping us equal-weight is the potential for sentiment upside. From beaten down levels, sentiment has runway to improve — particularly in Europe where the valuation discount is steep.

    • Northern Trust

      We are equal-weight inflation-linked bonds on the basis that central banks have the tools and perceived willingness to contain inflation, but that this is mostly reflected in valuations and the path back toward target levels may prove difficult.

    • Northern Trust

      We are neutral duration risk. In 2023 we expect Fed rate hikes to total 0.50% to 0.75%, to reach a steady policy rate of 5%, likely sufficiently high for a Fed pause. Treasury yields are likely move slightly higher but remain stable thereafter as we think labor market strength will make the Fed hesitant to reverse course. Non-US interest rates to hold steady or even decline on less inflation risk and higher recession risk than in the US.

    • Nuveen

      We expect the all-too-familiar headwinds of 2022 (persistent inflation, rising yields, hawkish central banks and a rocky geopolitical landscape) to drive volatility and uncertainty through the start of next year.

    • Nuveen

      We should continue to see pockets of strength across global equity markets on specific catalysts such as perceived dovish messaging from central banks or even a moderation of rate hikes, but the risks surrounding earnings, employment and contractionary manufacturing data lead us to believe we’re not yet out of the equity bear market.

    • Nuveen

      We think we are approaching the end of the current rate-hiking cycle in the US and think a terminal rate might kick in sometime in the second quarter of 2023 (other central banks are likely to continue tightening as they are further behind the curve).

    • Nuveen

      Geographically, we prefer US stocks (especially large caps) relative to other markets, as they offer better opportunities for both defensive positioning and growth. Across market sectors, we like healthcare as a relatively stable area and see opportunities in REITs, which offer a combination of solid fundamentals and attractive valuations. We also think the materials sector should benefit from easing inflation and energy should hold up well. We’re less favorable toward higher growth areas, including technology and communications services that are likely to struggle amid a “higher for longer” interest rate environment.

    • Pictet Asset Management

      At the same time, we expect inflation to slow sharply, from a global peak of 8.3% to 3.5% by the end of 2023. That will be enough for major central banks to end their tightening cycles, led by the US Federal Reserve, but not enough for them to start cutting rates. We see Fed funds peaking at 4.75%, with an end to its quantitative tightening program in the third quarter of the year. We see the ECB taking over as the major source of policy tightening as the Fed’s slows.

    • Pictet Asset Management

      A massive liquidity drain will weigh on risk assets. We estimate developed market central bank balance sheets to contract by more than $2 trillion.

    • Pictet Asset Management

      We see the return to global equities limited to some 5% for the coming year, barely above the 3% we forecast for global government bonds. US equities are set to show the best performance. This is thanks to relatively attractive valuations, resilient domestic growth and the fact that the Fed is set to be the first of its peers to reach the end of its hiking cycle.

    • Pimco

      As we navigate a period of elevated inflation and an economic slowdown, our starting point is one of caution. Pimco’s business cycle models forecast a recession across Europe, the UK, and the US in the next year, and the major central banks are pressing ahead with policy tightening despite increasing strain in financial markets.

    • Pimco

      The economy in developed markets is under growing pressure as monetary policy works with a lag, and we expect this will translate into pressure on corporate profits. We therefore maintain an underweight in equity positioning, disfavor cyclical sectors, and prefer quality across our asset allocation portfolios.

    • Pimco

      Our base case of an economic slowdown or recession would bring demand destruction and ease inflationary pressures, which also implies that the US Fed funds rate may peak in early 2023.

    • Pimco

      We believe corporate earnings estimates globally remain too high and will have to be revised downward as companies increasingly acknowledge deteriorating fundamentals. Only when rates stabilize and earnings gain ground would we consider positioning for an early cycle environment across asset classes, which would likely include increasing allocations to risk assets. High yield credit and equities generally only rally late in a recession and early in an expansion.

    • Pimco

      In the US, unlike previous cycles, we do not expect a rapid transition from Fed hikes to rate cuts and the ensuing market support. But even without a significant rate rally, US Treasury yields are already high enough to offer compelling return just from the income alone. In addition, a stabilization in rates could draw more investors back into the asset class.

    • Pimco

      Once a recession is underway and the initial deleveraging is mostly done, we expect high quality investment grade credit spreads would also begin to tighten. This year, the initial condition of corporate balance sheets is generally healthy, and we view a default wave as unlikely, especially considering the Fed’s continuing focus on financial stability and functioning credit markets.

    • Principal Asset Management

      2023 is sizing up to be a better year for some segments of the market than 2022. Inflation and central bank policy will likely continue being a key focus for investors. Yet, while persistently restrictive monetary policy and the resulting US recession will weigh on the broad equity market outlook, it implies opportunities for both core fixed income and real assets.

    • Principal Asset Management

      While the Federal Reserve will hike a few more times in 2023, it is likely nearing the completion of its tightening cycle. This implies that bonds will be able to support portfolios as recession approaches, with government bond yields under downward pressure and securitized debt typically providing protection during periods of volatility and risk.

    • Robeco

      We think that the belief in central bankers’ ability to prevent cyclical downturn is flawed. Instead, we expect a hard landing. Risks are tilted to the downside for the 2023 consensus of US annual real GDP growth of 0.8%. As recessions tend to be highly disinflationary, we believe this will take the sting out of inflation.

    • Robeco

      With core inflation still well above target in the first half of 2023, central bankers will likely stretch the pause after the hiking cycle and be reluctant to cut interest rates, even in the face of a US recession.

    • Robeco

      When unemployment surges towards 5% and disinflation accelerates on the back of a NBER recession in the second half of 2023, the Fed (and other central banks) will start cutting. Therefore, we think the Fed policy rate will be below the 4.6% December 2023 level implied in the Fed funds futures curve.

    • Robeco

      For the euro zone, the consensus of 0.4% real GDP growth in 2023 is fairly consistent with leading indicators like decelerating broad money growth in the region. But we flag the risk of excess tightening by the ECB, especially to get imported inflation under control.

    • Robeco

      The pace of rate hikes will slow as employment figures start to deteriorate. This will solidify the bull market for sovereign bonds and, after a dismal 2022, there will be better times ahead for the 60/40 portfolio.

    • Robeco

      While the dollar bull market could prove to be more persistent as the Fed shows reluctance to pivot and as potential liquidity events trigger safe-haven flows towards the US, the dollar bull run will likely peak in 2023. This will be on the back of declining rate differentials between the US and the rest of the world, and a peak in US growth versus the rest of the world.

    • Schroders

      The overall market outlook for 2023 will largely depend on the direction of US Fed monetary policy, which the firm sees pivoting, and whether or not a global recession would become a reality, which the team considers likely.

    • Schroders

      Global central banks are likely to press ahead with more rate hikes before a pivot, weighing onto economic growth prospects. We see market expectations of a peak in US interest rates at close to 5% as being appropriate, after which the pace of hikes will likely slow.

    • Societe Generale

      2023 should be a year during which the real economy finally deteriorates into a (mild) recession, monetary conditions gradually stop tightening, while systemic risk grows.

    • Societe Generale

      The impact of tighter monetary policy is likely to be reflected in lackluster earnings. Inflation has likely peaked already, and the trajectory of monetary policy is unlikely to be more hawkish than what the market is currently pricing in, in our view.

    • Societe Generale

      We remain confident that 10-year US treasury yields have peaked or are close to peaking in a 4% to 4.5% range, with a capital gains potential by end-2023, as the Fed continues to provide more color on the nature of its pivot. They have already announced a lower magnitude of rate hikes, after which we can expect a no-hike stance, before markets should then start to price in expectations of rate cuts. We prefer EM bonds to US Treasuries, in a clear switch.

    • Societe Generale

      The end of the hiking cycle for majority of emerging-market countries is highly conducive for EM local bond outperformance.

    • State Street

      The Fed can’t hike rates forever. Eventually earnings cynicism will find a bottom and optimism will be repriced. In the meantime, positioning portfolios for the fundamental weakness washing over the world, while acknowledging the potential for future positivity, takes combining offense with defense.

    • State Street

      While aggressive Fed policy has led to some improvement, defeating inflation will take some time.

    • State Street

      A policy pivot could potentially renew sentiment toward more cyclical segments of the market and usher in hope for earnings positivity off a very cynical base. But the timing is uncertain. While a pivot is getting closer, as the Fed enters the later stages of its hiking cycle and earnings continue to be revised lower, the change in trend is unlikely to occur right away.

    • State Street

      Although markets are projecting rates to decline by late 2023, central banks are likely to remain plenty aggressive in the near term. Until the Fed’s battle against inflation turns less aggressive, the elevated yields in defensive short-duration sectors may help investors balance income and total return in order to preserve capital.

    • State Street

      Higher rates have created attractive defensive yield opportunities on the short end of the curve — namely Treasuries with less than one-year of maturity given the recent inversion of the three-month and 10-year yield spread. An aggressive Fed and the likelihood for more rate hikes to come mean yields on three to 12 month T-bills are now higher than those of all different tenors. And given the maturity band, the rate risk for this exposure is minimal.

    • T. Rowe Price

      The global economy has passed from decades of declining interest rates into a new regime marked by persistent inflationary pressures and higher rates. Regime change clearly presents risks. But markets may have overreacted to some of those risks in 2022, creating attractive potential opportunities for investors willing to be selectively contrarian.

    • T. Rowe Price

      The balance between central bank tightening, high inflation, and slowing growth could produce rate volatility. Higher yields, especially for high yield bonds, are supported by strong fundamentals and can help provide a buffer against credit weakness.

    • T. Rowe Price

      The Fed hiking cycle isn’t complete, but it has covered much ground. Long duration Treasuries historically have performed well in recessions and could provide diversification as the economy weakens.

    • T. Rowe Price

      Valuations and currencies are attractive in many emerging markets. Central bank tightening may have peaked. The path in 2023 is likely to remain uneven, but an easing of China’s zero‑Covid policies could be a significant tailwind.

    • T. Rowe Price

      Emerging-market currencies and local currency yields are at attractive levels, reflecting cautious investor sentiment. As the Fed slows the pace of interest rate tightening, EM currencies may benefit.

    • T. Rowe Price

      A slowdown in the pace of Fed rate hikes should narrow rate differentials, softening dollar strength. Given the level of overvaluation, economic surprises — such as a sooner‑than‑expected Fed pivot — easily could push the US currency lower in 2023.

    • T. Rowe Price

      US investment grade yields could peak in the first half of 2023 as inflation cools, allowing the Fed to moderate policy. Slowing growth and inflation could support longer‑duration bonds. Credit may prove resilient thanks to strong fundamentals.

    • TD Securities

      2023 will see a balancing act from central banks, as they maintain restrictive policy to bring inflation down against a backdrop of recessions across most of the G-10. Inflation remains above target all year, and we anticipate a global recession.

    • TD Securities

      We expect a decline in long end rates of global bond curves; the front end should be anchored by hawkish central banks paralyzed by still too-high inflation.

    • TD Securities

      Weaker growth and higher policy rates for most emerging-market economies. Valuations and positioning suggest some value for EM investors, but worsening external metrics increase vulnerability.

    • Truist Wealth

      We expect next year will be the worst year for global growth since the 1980s, aside from the global financial crisis and Covid years. Many countries are set to experience recessionary pressures as the supersized rate hikes of the past year start to take stronger hold.

    • Truist Wealth

      US credit spreads should widen as the year progresses and the impact of the Fed’s aggressive policy tightening begins to emerge more fully. Areas like leveraged loans, high-yield corporates, and emerging-markets bond will likely see meaningful underperformance as economic risks rise.

    • Truist Wealth

      The Fed will likely finish raising rates in the first half of 2023, with the Fed funds rate reaching roughly 5%. The Fed’s singular focus on curbing generationally-high inflation will continue next year, likely holding policy rates at elevated levels until core inflation and job creation ease markedly and consistently.

    • Truist Wealth

      In the coming year, we expect inflation fears to evolve into growth concerns, particularly in Europe. The European Central Bank will likely be less aggressive in their policy response given Europe’s challenging macro backdrop. This would cap upward moves in euro zone yields. As a result, strong foreign demand for the relative yield advantage and safe-haven quality offered by US government debt should apply some downward pressure on US yields.

    • UBS

      Given our expectations of sharper US disinflation and rapid Fed easing in 2023, we expect US 10-year yields will fall 150 basis points to end the year at 2.65%. Ten-year real yields retrace half of this year’s rise to end 2023 at 65bps. We expect 10-year Bunds and Gilts to underperform Treasuries as “single mandate” ECB and BOE stay on hold for longer. JGBs do little as the BOJ persists with YCC. Australia and Korea duration are our favored APAC picks.

    • UBS

      The strongest EM disinflation in 20 years should drive 10% to 12% returns in EM duration. EM equities should post similar returns (but later, and with lower Sharpe ratios) as a peaking Fed, China reopening and troughing semis cycle drive strong second-half returns. Currencies are the weakest link. We see EM Asia weakening further in the first half amid a weak trade backdrop, low carry and a need to rebuild depleted FX reserves.

    • UBS

      The economic weakness we forecast is widespread but it is not deep. It would be enough, however, to push unemployment 100 basis points higher in DM, and 200 basis points in the US (to 5.5%). Combined with inflation coming down rapidly in the coming quarters, that creates a much stronger central bank pivot than is priced by the market: about 200 basis points in DM cuts by mid-2024 (and nearly 400 basis points in the US).

    • UBS Asset Management

      The US economy (and earnings) probably don’t fall off as sharply as many are projecting, and, however, also the Fed will need to keep rates higher for longer.

    • UBS Asset Management

      Our confidence that the bottom is in for China is fortified since these adjustments to Covid-19 policy are taking place in tandem with the most comprehensive support for the property sector to date. A rebounding China may provide a needed boost as developed economies slow, but will also likely lead to higher commodity prices. This too may make it difficult for the Fed and other central banks to back off too quickly.

    • UBS Asset Management

      Going into 2023, we expect global equities at an index level to remain range-bound. They will likely be capped to the upside by the Fed’s desire to keep financial conditions from easing too much. However, we expect some cushion on the downside from a resilient economy and rebounding China.

    • UBS Asset Management

      Financials and energy are our preferred sectors. This is because we believe cyclically-oriented positions should perform if what appears to be overstated pessimism on global growth fades in the face of resilient economic data. Activity surprising to the upside and a higher-for-longer rate outlook should benefit value stocks relative to growth, in our view – particularly as profit estimates for inexpensive companies are holding up well relative to their pricier peers.

    • UBS Asset Management

      We are neutral on government bonds. The Fed is likely to be slow in ending or reversing its hiking cycle as long as the US labor market bends but does not break, while signs that overall inflation has peaked may reduce the odds of overtightening. However, price pressures are likely to remain stubbornly high – a side effect of a US labor market that refuses to crack.

    • UBS Asset Management

      In currencies, we believe we have moved from a strong, trending US dollar to more of a rangebound trade in USD. Our catalysts for a broad turn in the dollar are for the Fed to stop hiking interest rates, China’s zero-Covid-19 policy to end, and energy pressures in Europe stemming from Russia’s invasion of Ukraine to subside. None of these have fully happened yet, but all three appear to be getting closer. A more rangebound dollar coupled with a global economy that is still growing, but slowing, could provide a very positive backdrop for high carry, commodity-linked currencies. We prefer the Brazilian real and Mexican peso.

    • UniCredit

      Inflation is set to decelerate meaningfully in 2023. The Fed and the ECB are likely to finish their tightening cycle by early next year and to start cutting rates in 2024.

    • UniCredit

      The ongoing sharp monetary tightening and upcoming recession pose significant downside risks. However, evidence of slowing core inflation, peaking official rates and signs of economic recovery would pave the way for more risk taking in the second half.

    • UniCredit

      Long-dated yields are likely to be close to their peaks. Convincing signals that inflation is easing will give central banks a green light to rein in some of the recent tightening, leading to a bull market revival and curve steepening.

    • Vanguard

      We don’t believe that central banks will achieve their targets of 2% inflation in 2023, but they will maintain those targets and look to achieve them through 2024 and into 2025 — or reassess them when the time is right.

    • Vanguard

      Although rising interest rates have created near-term pain for investors, higher starting interest rates have raised our return expectations more than twofold for US and international bonds. We now expect US bonds to return 4.1%–5.1% per year over the next decade, compared with the 1.4%–2.4% annual returns we forecast a year ago. For international bonds, we expect returns of 4%–5% per year over the next decade, compared with our year-ago forecast of 1.3%–2.3% per year.

    • Wells Fargo

      Our base case scenario is for the Federal Reserve to deliver a bit more tightening than what the market is pricing. Meanwhile, we expect the Bank of England and European Central Bank to not hike as much as implied by the market. Inflation falls fairly quickly in the US, and but drops even faster in several other large economies. US core CPI drops below 3% annualized, but with a wide confidence interval around this forecast.

    • Wells Fargo

      G10 central banks followed the same playbook for most of 2022. This already has begun to change, and differences should be quite pronounced by mid-2023. The Fed hikes through mid-2023, then sits for quite a while unless the US economy rolls over. Fragile housing markets in countries such as Canada, Australia, and Sweden cause their central banks to end tightening early in 2023, and contemplate easing somewhat soon.

    • Wells Fargo

      Stagflation is the biggest macro risk, in our opinion, and central bank responses would be tough to predict. Some policymakers likely would opt to put their economies into the deep freeze so they could squelch inflation.

    • Wells Fargo

      Relative interest rate outlook still supports dollar upside. We think the Fed will hike rates more than current market pricing and keep rates higher for longer than market pricing indicates. In contrast, we think market pricing is generally still too high for the ECB, BOE and several other central banks. Debt overhangs will likely force many central banks to keep real rates uncomfortably low.

    • Wells Fargo

      Massive private debt overhang in many G10 economies could cause earlier/faster rate cuts. Risks appear to be largest in Sweden and Canada, both of which have seen a huge jump in corporate and household debt/GDP over the past decade

    • Wells Fargo Investment Institute

      We expect a U.S. recession in the first half of 2023, as well as a continued global economic slowdown, as last year’s hawkish monetary policy and money growth slowdown works with a lag. That should drive down corporate earnings growth and create important inflection points for investors over the next nine to 12 months.

    • Wells Fargo Investment Institute

      Dollar strength early in the year should flatten and partially reverse its upward trajectory, as slowing inflation and Federal Reserve interest-rate cuts in the second half of 2023 remove a key source of support.

    • Wells Fargo Investment Institute

      We expect US Treasury yields to decline in 2023 as we go through an economic recession and in anticipation of policy rate cuts from the Fed.

    • Wells Fargo Investment Institute

      Long-term yields tend to peak before the Fed finishes raising rates. We favor remaining nimble in bond portfolio allocations with a barbell strategy that lengthens maturities but also takes advantage of ultra-short term yields. An eventual economic recovery in the latter half of the year should begin to support credit-oriented asset classes and sectors.

  6. US
    • Amundi Asset Management

      In the US, the Fed’s aggressive tightening has increased the risk of recession in the second half, while again failing to dent inflation.

    • Amundi Asset Management

      Equities should offer entry points when they have repriced in the coming months, with a preference for US and a quality/value/high dividend tilt. Investors should gradually increase exposure to European and Chinese, cyclical and deep value stocks.

    • AXA Investment Managers

      We expect inflation to fall back towards target over the coming two years as global growth slows, with recessions forecast in both Europe and the US.

    • AXA Investment Managers

      The Fed won’t want to cut rates as quickly as the market is currently pricing (second half of 2023) since they will want to be satisfied that they have properly broken the back of inflation. The price to pay for this will be a recession in the first three quarters of 2023 in the US which will trigger the usual adverse ripple effects over the entirety of the world economy next year. Any recession looks set to be mild, though our US GDP outlook of -0.2% and 0.9% for 2023 and 2024 is lower than consensus. Interest rates appear close to a peak – we estimate 5% – and are likely to remain at that level until 2024.

    • AXA Investment Managers

      Outside of the US, markets have seen significant declines in price-earnings multiples. European markets, for example, would be well placed to rally should there be positive developments in Ukraine. Asia will benefit from a post “zero-Covid” recovery in China. Long term, however, the US valuation premium is not likely to be challenged given the dominance of US technology, a greater level of energy security and more positive demographics. In the near term though, some highly-priced parts of the US market remain vulnerable.

    • Bank of America

      Going into 2023, one expected shock remains: recession. The US, euro area and UK are all expected to see recessions next year, and the rest of the world should continue to weaken, with China a notable exception. The recession shock likely means corporate earnings and economic growth will come under pressure in the first half of the year, while at the same time, China’s reopening offers a reprieve for certain assets.

    • Bank of America

      A recession is all but inevitable in the US, euro area and UK. Expect a mild US recession in the first half of 2023 with a risk that it starts later. Europe likely sees recession this winter with a shallow recovery thereafter as real incomes and likely overtightening pressure demand.

    • Bank of America

      A strong labor market, ESG, US/China decoupling, and deglobalization/reshoring are expected to keep certain areas of capex strong, even in the event of a recession.

    • Barclays

      The global economy looks set to enter a stagflationary phase: as Europe and the US contract, growth remains sluggish in China, but inflation fades only gradually. Bringing inflation back to target, while output sinks and employment rises, will test central banks’ resolve.

    • Barclays

      Controls on US semiconductor exports to China are part of a broader strategic agenda that, although manageable for now, could have substantial effects on China’s output and currency if escalated further.

    • BCA Research

      Relative to subdued expectations, growth will surprise to the upside in 2023, as the US averts a recession, Europe experiences a robust recovery following the energy crisis, and China dismantles its zero-Covid policies. Growth will weaken towards the end of 2023, with a mild recession probable in 2024

    • BCA Research

      We would not rule out a US recession over the next 24 months. However, if a recession does occur, it will probably not start until 2024. More importantly, any US recession is likely to be a mild one – so mild, in fact, that it may end up being almost indistinguishable from a soft landing.

    • BCA Research

      The conventional wisdom sees stocks falling in the first six months of 2023 in anticipation of a US recession and then recovering in the back half of the year once the first green shoots appear. We think the exact opposite will happen: Stocks will rise in the first half of 2023 as hopes of a soft landing intensify, and then dip in the second half. Favor non-US stocks in 2023, especially emerging markets. Small caps will outperform large caps.

    • BCA Research

      Global bond yields will move sideways in the first half of next year, as the impact of falling inflation broadly offsets the impact of better-than-expected growth data. Yields should drop modestly in the second half of the year as the US economy edges closer to recession.

    • BNP Paribas

      We expect a downturn in global GDP growth in 2023, led by recessions in both the US and the euro zone, with below-trend growth in China and many emerging markets.

    • BNY Mellon Investment Management

      With Europe and the UK in or approaching recession, China slowing sharply and the US “needing” one to bring inflation back to target, it is our belief that “Global Recession” remains our single most likely scenario – we give it a 60% probability.

    • BNY Mellon Investment Management

      Regionally, we prefer US equity to developed international and emerging markets primarily due to the higher (albeit still low) likelihood of an engineered soft landing, which would boost US equity disproportionally. The outlook suggests staying defensive on a sector and factor basis, preferring healthcare and consumer staples, and quality and low volatility, respectively. We also continue to favor higher income and value equities for their lower exposure to re-rating risk and wide multiples spread to growth.

    • Brandywine Global Investment Management

      We favor having more duration exposure in Treasuries as there is more relative tightening of financial conditions in the US than in European bonds or Japanese government bonds.

    • Brandywine Global Investment Management

      The powerful rally in the dollar in 2022 was driven by an alignment of factors that will not persist in 2023. The greenback is expensive, and relative growth prospects point to a weaker dollar next year. Relative monetary policy will also tighten more outside the US, notably in Europe. A weaker greenback will allow for some stability in EM currencies, which we think are broadly undervalued.

    • Brandywine Global Investment Management

      US equities remain our biggest country underweight. We think there is more bad news to come, and market expectations and valuations are still too optimistic. It is clear to everyone, except the central bankers, that the Fed is on course for another major policy error. They may succeed in curing inflation but are also likely to seriously hurt the patient in the process. We are content to stay defensive and underweight the US until valuations offer a greater margin of safety, or the Fed alters its monetary policy.

    • Carmignac

      2023 will be a year of global recession, but investment opportunities will arise from the continued desynchronization between the three largest economic blocs – the US, the euro area and China.

    • Carmignac

      We expect the US economy to enter a recession later this year but with a much sharper and longer decline in activity than anticipated by the consensus. Faced with inflation, the Fed will have to create the conditions for a real recession with an unemployment rate well above 5%, compared with 3.5% today, which is not currently envisaged by the consensus

    • Citi

      In equities we take off the European underweight, and shift it to the US. We go long China and stay underweight in Asia excluding China. We reduce the UK equity long to keep the overall level of equity risk unchanged. These positions are FX hedged. For US sectors we remain defensive: long healthcare and utilities against industrials and financials.

    • Citi

      We reduce our negative credit views, by taking European credit back to flat, on the view that the bottom in the ZEW may be in, which has historically been a positive factor. It is hard to see how shocks in 2023 will be even worse for Europe than what we saw 2022. But given the US recession view we stick to underweights in both US investment grade and high yield.

    • Columbia Threadneedle

      While economic growth is slowing, at this point it doesn’t look like a recession in the US will be very deep. In contrast, economies in Europe are under significant stress and a deeper recession there seems likely.

    • Credit Suisse

      Inflation is peaking in most countries as a result of decisive monetary policy action, and should eventually decline in 2023. Our key assumption is that it will remain above central bank targets in 2023 in most major developed economies, including the US, the UK and the euro zone. We do not forecast interest-rate cuts by any of the developed market central banks next year.

    • Deutsche Bank

      The recession we have now been anticipating for nine months draws nearer. A downturn may already be under way in Germany and the euro area overall thanks to the energy shock stemming from the Russia-Ukraine war. Our expectation for a recession in the US by mid-2023 has strengthened on the back of developments since early last spring.

    • Deutsche Bank

      We read the Fed and ECB as being absolutely committed to bringing inflation back to desired levels within the next several years. Although the costs in doing so may be lower than in the past, it will not be possible to do so without at least moderate economic downturns in the US and Europe, and significant increases in unemployment.

    • Deutsche Bank

      Overall, we see output declining 1% in the euro area and 2% in the US during the year ahead. World growth slows to around 2% in this forecast, a rate that has historically been labeled recessionary.

    • Deutsche Bank

      Equity markets are projected to move higher in the near term, plunge as the US recession hits and then recover fairly quickly. We see the S&P 500 at 4,500 in the first half, down more than 25% in the third quarter, and back to 4,500 by year end 2023.

    • Deutsche Bank

      The 10-year Treasury yield is projected to remain in its recent range in the months to come, and then rally moderately around midyear as the US downturn approaches. The German Bund yield should rise to 2.60% by the second quarter before remaining relatively stable in comparison to Treasury yields.

    • Deutsche Bank

      The pace of recovery in 2024 and beyond is likely to be moderate, not a strong bounce as has been seen in the past. Factors that are likely to weigh on global growth for some time to come include uncertainties relating to both the Russia-Ukraine conflict—including a lingering energy-related competitiveness shock in Europe—and the growing US-China strategic competition.

    • DWS

      The looming mild recession in the US and the euro zone will be very different from previous downturns. Thanks to the demographically driven labor market, which is robust even in a downturn, workers will keep their jobs – for the most part – household incomes will remain stable and consumers will continue to consume.

    • DWS

      We expect the US Federal Reserve to raise key interest rates to between 5% and 5.25% next year, while in the euro zone the key rate is likely to rise to 3%. We do not currently see a rate cut next year.

    • DWS

      Inflation rates are expected to fall in 2023 but will still remain at a high level – 6% in the euro zone and 4.1% in the US.

    • DWS

      The recovery after the downturn will also be very modest. Growth rates of 0.3% (2023) and 1.2% (2024) for the euro zone, and 0.4% and 1.3% for the US.

    • DWS

      Tactically, we are quite bullish on European equities. The valuation discount to US stocks of 31% is more than double the average of the past 20 years. The outlook for value stocks, which have a higher weighting in European indexes than in US indexes, remains positive. The days of buying growth stocks at any price are over for now.

    • Fidelity

      Markets want to believe that central banks will blink and change direction, negotiating the economy towards a soft landing. But in our view, a hard landing remains the most likely outcome in 2023. A recession is likely in the US and near certain in Europe and the UK.

    • Fidelity

      We expect Chinese policymakers to continue to focus on reviving the economy, investing in longer-term areas such as green technologies and infrastructure. Any loosening of Covid restrictions will cause consumption to pick up. The deglobalization that has arisen from the pandemic and tensions with the US will take time to work its way through but is a theme that will grow.

    • Fidelity

      In the US, the Fed appears set on raising rates significantly beyond neutral levels to bring inflation under control. We do not expect a pivot until there is a meaningful deterioration in hard data, especially inflation and the labor market. Although we do not expect it soon, when it does arrive, it should boost risky assets such as equities and credit, as well as government bonds.

    • Fidelity

      Were the US to head into recession next year, credit defaults would rise significantly. So far, the market is yet to reflect these risks, notably in high yield credit. Prudent credit selection within high yield is therefore essential.

    • Franklin Templeton

      Europe is likely already in a recession and the US is likely to fall into one — hopefully a mild one. Risk/reward profiles seem to favor fixed income over global equities, particularly for the first half of 2023.

    • Generali Investments

      The start of 2023 is dominated by a global – if desynchronized – economic slowdown (cold) but still elevated inflation (hot). Our core scenario sees a mild euro-area recession, and an even milder US one. Risks are skewed to the downside: such brutal tightening of monetary policy and financial conditions rarely leaves the economy and markets unscathed.

    • Generali Investments

      We forecast a drop in global growth from 3.2% in 2022 to 2.1% in 2023. We expect barely positive US growth (0.3%), with even a mild contraction over the central quarters of 2023. We expect core CPI inflation to end 2023 slightly above 3% year-on-year. Europe is likely entering recession at the turn of the year, while the Covid policy relaxation in China, along with a better credit impulse, will support a mild recovery.

    • Generali Investments

      We see 10-year Treasuries trading at 3.25% at the end of 2023. We are less confident about Bunds, despite our slightly less hawkish ECB views (relative to market pricing).

    • Generali Investments

      We continue to favor euro investment-grade credit, which is cheaper from a historical perspective than other credit segments (especially global high yield and US credit).

    • Generali Investments

      The fundamentally overvalued dollar is past peak. The Fed’s final hike looming for early spring 2023 is set to reduce rates uncertainty (a previous dollar boost) and path the way to narrowing yield gaps vs major peers. Initially, the transition is likely to prove volatile, though. The euro is still to feel the pain from recession and the energy crunch, leaving the currency shaky near term. But fading recession forces by early spring may mark the start of ensuing capital inflows to the euro area and a more sustained euro recovery.

    • Goldman Sachs

      We expect global growth of just 1.8% in 2023, as US resilience contrasts with a European recession and a bumpy reopening in China.

    • Hirtle Callaghan

      We are neutral to global equities, believing there is still a lot of uncertainty. Within equities, we are biased to the US. We prefer to own quality growth companies with strong operating fundamentals and lasting pricing power. We are underweight International Developed markets relative to the US given their cyclical exposure, weaker fundamentals and the energy crisis in Europe.

    • HSBC

      In rates, we prefer US Treasuries over Bunds, and Canadian government bonds over US Treasuries. Elsewhere in DM sovereigns, we also favour Spain vs Italy and in EM prefer Mexico vs Brazil.

    • Invesco

      We expect headline inflation rates to come down in the near term, and 2023 should see a period of declining inflation rates, especially in the US.

    • Invesco

      US and European central banks are tightening despite slowing growth, signs that inflation is peaking and the fact that financial conditions have already tightened substantially. We expect these factors to eventually turn the tide, leading to a pause in rate hikes materializing in early 2023.

    • JPMorgan

      Global GDP growth in 2023 is forecast to climb 1.6%. Developed Market growth is forecast at 0.8%, US growth is forecast at 1%, euro area growth is projected to come in at 0.2%, China’s economy is forecast to grow 4.0% and emerging market growth is forecast at 2.9% in 2023.

    • JPMorgan

      The convergence between the US and international markets should continue next year, both on a dollar and local currency basis. The S&P 500 risk-reward relative to other regions remains unattractive. Continental European equities have a likely recession to negotiate and geopolitical tail risks, but the euro zone has never been this attractively priced versus the US. Japan should be relatively resilient due to solid corporate earnings from the economy’s reopening, attractive valuation and smaller inflation risk compared with other markets.

    • JPMorgan

      The growth profile will show divergence: the euro area will likely face a mild recession into late 2022/early 2023, while the US is expected to slide into recession in late 2023.

    • JPMorgan

      In currency markets, further dollar strength is still expected in 2023, but of a lower magnitude and different composition than in 2022. The Fed pause should give the dollar’s rise a breather. Unlike in 2022, lower-yielding currencies like the euro are expected to be more insulated as central banks pause hikes and the focus shifts to addressing slowing growth — but this in turn makes high-beta, emerging market currencies more vulnerable. Weak growth outside the US should also remain a pillar of dollar strength in 2023.

    • JPMorgan Asset Management

      Within credit markets, we believe that an “up-in-quality” approach is warranted. The yields now available on lower quality credit are certainly eye-catching, yet a large part of the repricing year to date has been driven by the increase in government bond yields. High yield credit spreads still sit at or below long-term averages both in the US and Europe. It is possible that spreads widen moderately further as the economic backdrop weakens over the course of 2023.

    • Macquarie Asset Management

      The US will enter recessionary conditions in the first half following the UK and Europe; however, these recessions are likely to be over by mid-2023 and the developed world could see a synchronized recovery towards the end of the year.

    • Macquarie Asset Management

      We think it likely that both the UK (as of the third quarter 2022) and the euro area (starting fourth quarer 2022) are already in recession. For the US, we think recession risks are high enough for it to be considered our base case, although we don’t expect one to start until the first half of 2023. These recessions are likely to be relatively mild, however, with peak-to-trough falls in gross domestic product (GDP) ranging from -1.5% in the US to -2.5% in the UK.

    • Morgan Stanley

      Morgan Stanley fixed-income strategists forecast high single-digit returns through the end of 2023 in German Bunds, Italian Government bonds (BTPs) and European investment-grade bonds, as well as in Treasuries, investment-grade bonds, municipal bonds, mortgage-backed securities issued by government sponsored agencies and AAA-rated securities in the US.

    • Morgan Stanley

      Investors should keep a close eye on quality. US high-yield corporate bonds may look enticing, but they may not be worth the risk during a potentially extended default cycle.

    • NatWest

      We forecast a marked slowdown in global economic growth in 2023: 1.2% from 3.7% in 2022. Our projections are below market consensus and official forecasts (the latter typically do not show recessions—yet). The advanced economies are expected to endure a year of slowdown in 2023 with outright recessions in the US and UK and stagnation in the euro area – while China experiences a mild form of “economic long covid.”

    • NatWest

      Whilst there are some tentative hints that policymakers are becoming less hawkish, we do not expect any policy “pivot” (i.e. rate cuts) in 2023. The scale and persistence of the inflation overshoot in 2022 is likely to have resulted in reaction functions becoming more reactive for policy easing. Policy rate cuts in the US, euro area and UK are not expected until 2024.

    • NatWest

      Peak policy rates are well priced but fade any rate cut rhetoric. We see rates rates on hold through 2023 at 5% in the US, 2.25% in Europe and 4.25% in the UK. A more gradual path to peak rates than markets are currently pricing should permit higher rates for longer.

    • NatWest

      In the US we see bullish steepening risks as markets price a dovish pivot in the second half. In Europe and the UK, we remain short duration due to heavy supply, quantitative tightening, region risk and weak demand themes. Bearish steepeners out to 10 years. In Japan we see a change of leadership at the BOJ creating flexibility in yield curve control.

    • NatWest

      2023 is forecast to see significant falls in inflation as the energy shock unwinds, though we expect CPI to continue to overshoot targets in the US, euro area and UK. The energy unwind is a necessary, but not a sufficient, condition for inflation to return sustainably to target.

    • NatWest

      We forecast a recession in the US, with GDP declining by 0.4% year-on-year in 2023. We suspect we should see a relatively mild downturn in the current setting (peak-to-trough -1%) followed by a comparatively modest recovery (we expect below-trend growth of roughly 1% later in the year).

    • Ned Davis Research

      Like the global economy, the risk of recession weighs on the outlook for US economic growth in 2023. We project real GDP growth will end the year in a range of -0.5% to 0.5%. We see a 75% chance that the economy contracts for part of 2023 and give 25% odds to a soft-landing scenario.

    • Ned Davis Research

      We are neutral on US stocks on an absolute basis and relative to bonds and cash. Macro and earnings concerns are offset by extreme pessimism and technical improvements. We favor small-caps over large-caps and Value over Growth. We are overweight Europe equities excluding the UK and marketweight on all other international regions.

    • Ned Davis Research

      We are watching for better Technology stock performance to support global breadth and US relative strength. While a risk for Europe is that too much good news has been discounted too early, a choppy uptrend is likely for European equities. Cyclical sectors should outperform defensive sectors.

    • Northern Trust

      In equities, risks surrounding fundamentals are tilted to the downside given the extent of cumulative central bank tightening. Pockets of economic durability should limit a US earnings slowdown, while monetary policy offers a bit more support elsewhere. Keeping us equal-weight is the potential for sentiment upside. From beaten down levels, sentiment has runway to improve — particularly in Europe where the valuation discount is steep.

    • Northern Trust

      We are neutral duration risk. In 2023 we expect Fed rate hikes to total 0.50% to 0.75%, to reach a steady policy rate of 5%, likely sufficiently high for a Fed pause. Treasury yields are likely move slightly higher but remain stable thereafter as we think labor market strength will make the Fed hesitant to reverse course. Non-US interest rates to hold steady or even decline on less inflation risk and higher recession risk than in the US.

    • Nuveen

      We think we are approaching the end of the current rate-hiking cycle in the US and think a terminal rate might kick in sometime in the second quarter of 2023 (other central banks are likely to continue tightening as they are further behind the curve).

    • Nuveen

      Geographically, we prefer US stocks (especially large caps) relative to other markets, as they offer better opportunities for both defensive positioning and growth. Across market sectors, we like healthcare as a relatively stable area and see opportunities in REITs, which offer a combination of solid fundamentals and attractive valuations. We also think the materials sector should benefit from easing inflation and energy should hold up well. We’re less favorable toward higher growth areas, including technology and communications services that are likely to struggle amid a “higher for longer” interest rate environment.

    • Pictet Asset Management

      At the same time, we expect inflation to slow sharply, from a global peak of 8.3% to 3.5% by the end of 2023. That will be enough for major central banks to end their tightening cycles, led by the US Federal Reserve, but not enough for them to start cutting rates. We see Fed funds peaking at 4.75%, with an end to its quantitative tightening program in the third quarter of the year. We see the ECB taking over as the major source of policy tightening as the Fed’s slows.

    • Pictet Asset Management

      We see the return to global equities limited to some 5% for the coming year, barely above the 3% we forecast for global government bonds. US equities are set to show the best performance. This is thanks to relatively attractive valuations, resilient domestic growth and the fact that the Fed is set to be the first of its peers to reach the end of its hiking cycle.

    • Pimco

      As we navigate a period of elevated inflation and an economic slowdown, our starting point is one of caution. Pimco’s business cycle models forecast a recession across Europe, the UK, and the US in the next year, and the major central banks are pressing ahead with policy tightening despite increasing strain in financial markets.

    • Pimco

      In the US, unlike previous cycles, we do not expect a rapid transition from Fed hikes to rate cuts and the ensuing market support. But even without a significant rate rally, US Treasury yields are already high enough to offer compelling return just from the income alone. In addition, a stabilization in rates could draw more investors back into the asset class.

    • Principal Asset Management

      2023 is sizing up to be a better year for some segments of the market than 2022. Inflation and central bank policy will likely continue being a key focus for investors. Yet, while persistently restrictive monetary policy and the resulting US recession will weigh on the broad equity market outlook, it implies opportunities for both core fixed income and real assets.

    • Robeco

      While the dollar bull market could prove to be more persistent as the Fed shows reluctance to pivot and as potential liquidity events trigger safe-haven flows towards the US, the dollar bull run will likely peak in 2023. This will be on the back of declining rate differentials between the US and the rest of the world, and a peak in US growth versus the rest of the world.

    • Societe Generale

      We’re expecting several pivots in 2023, which will likely open new chapters in market history. Identifying the right sequence will be all important, with the UK, most EM, and the US set to lead the pack, while the euro area, Japan, China, and most frontier markets likely to be lagging.

    • Societe Generale

      We expect euro investment grade to generate excess returns of more than 5% in 2023 and total returns of just under 10%, which would be the best performance in a decade. A bull decompression in the early stages of the rally should prompt IG to outperform high yield, Single A to outperform BBB and Banks and Utilities to outperform Industrials and Cyclicals. US expected return on credit is even higher, as we expect a milder recession there.

    • State Street

      Non-US equities now trade at 12.17 times next year’s earnings, 20% below their historical median average of 14.94. The same is true under a shorter horizon, as US stocks trade on par and at 7% above their five- and 15-year median levels. Meanwhile, non-US stocks trade 11% and 12% below their five- and-15-year median levels, respectively.

    • State Street

      While risk is still likely to be elevated in the near term, if a policy pivot turns market pessimism to optimism and risk aversion declines, our view is that segments with decent fundamentals and attractive valuations may enter a repair phase more quickly than expensive areas. Domestically oriented US small caps represent one of these possibilities.

    • T. Rowe Price

      US equities remain expensive on a relative basis. However, the US economy appears to be on a stronger footing than the rest of the world, and its less cyclical nature could provide support as global growth weakens.

    • T. Rowe Price

      In equities, the team is slightly underweighting US and European equities. It is overweighting emerging markets, Japan, international versus US stocks, and US small-capitalization stocks versus their large-cap counterparts.

    • T. Rowe Price

      In fixed income, the team is slightly underweight US and other developed market investment grade bonds. The team favors emerging markets, floating rate loans, and global high yield.

    • Truist Wealth

      Our base case calls for a US recession in 2023, even though economic growth in the US is expected to remain stronger relative to global peers. Europe is likely to see the deepest recession, with countries closer to Ukraine and Russia being hit especially hard.

    • Truist Wealth

      Within equities, we retain a US bias. Overseas markets remain cheap on a relative basis, but valuation is a condition not a catalyst. Given the weak global economic backdrop we expect next year, the US economy should remain a relative outperformer, and while the upward momentum in the US dollar is likely to slow, it should remain relatively strong.

    • Truist Wealth

      The Fed will likely finish raising rates in the first half of 2023, with the Fed funds rate reaching roughly 5%. The Fed’s singular focus on curbing generationally-high inflation will continue next year, likely holding policy rates at elevated levels until core inflation and job creation ease markedly and consistently.

    • Truist Wealth

      In the coming year, we expect inflation fears to evolve into growth concerns, particularly in Europe. The European Central Bank will likely be less aggressive in their policy response given Europe’s challenging macro backdrop. This would cap upward moves in euro zone yields. As a result, strong foreign demand for the relative yield advantage and safe-haven quality offered by US government debt should apply some downward pressure on US yields.

    • UBS

      For the US, we now expect near zero growth in both 2023 and 2024 (roughly 1 percentage point below consensus), and a recession to start in 2023. Combined with inflation falling rapidly (50 basis points below consensus), the Fed would cut the Federal Funds rate down to 1.25% by early 2024. The speed of that pivot will drive every asset class next year.

    • UBS

      Stocks are pricing in only 41% and 80% probabilities of a recession in the US and Europe, respectively. Weak growth and earnings drag the market lower before a fall in rates helps it bottom at 3,200 in the second quarter and lifts it to 3,900 by the end of 2023. With revenues and margins under greater pressure, Eurostoxx is likely to do worse, bottoming in the second quarter at 330 & ending 2023 at 385. As a part of our top trades we lay out stock lists of disinflation beneficiaries. Quality and Growth are likely to perform better than Value.

    • UBS

      Given our expectations of sharper US disinflation and rapid Fed easing in 2023, we expect US 10-year yields will fall 150 basis points to end the year at 2.65%. Ten-year real yields retrace half of this year’s rise to end 2023 at 65bps. We expect 10-year Bunds and Gilts to underperform Treasuries as “single mandate” ECB and BOE stay on hold for longer. JGBs do little as the BOJ persists with YCC. Australia and Korea duration are our favored APAC picks.

    • UBS

      Unlike equities, we prefer EU high-yield to US high-yield in credit. We also prefer investment grade over high yield and leveraged loans in all regions.

    • UBS

      The economic weakness we forecast is widespread but it is not deep. It would be enough, however, to push unemployment 100 basis points higher in DM, and 200 basis points in the US (to 5.5%). Combined with inflation coming down rapidly in the coming quarters, that creates a much stronger central bank pivot than is priced by the market: about 200 basis points in DM cuts by mid-2024 (and nearly 400 basis points in the US).

    • UBS

      Against long-term average global growth of 3.5%, the common signal across assets is pricing in 3% global growth. That’s sub-trend but not recessionary. High-yield credit is most optimistic, equities less so. But a deep dive within equities shows that even they are not priced for a recession yet. US equities are pricing in only a 41% probability of recession, compared to 80% in Europe (which is already in recession) and 64% for China. The decline in stocks thus far can be fully explained by the rise in real rates and widening of spreads. The growth downturn is yet to be priced. The lows are not in yet.

    • UBS Asset Management

      The US economy (and earnings) probably don’t fall off as sharply as many are projecting, and, however, also the Fed will need to keep rates higher for longer.

    • UBS Asset Management

      We are neutral on government bonds. The Fed is likely to be slow in ending or reversing its hiking cycle as long as the US labor market bends but does not break, while signs that overall inflation has peaked may reduce the odds of overtightening. However, price pressures are likely to remain stubbornly high – a side effect of a US labor market that refuses to crack.

    • UBS Asset Management

      In US and European credit,, investment grade bond yields look increasingly attractive as a balance between a potentially resilient economy and more range-bound government bond yields.

    • UniCredit

      We forecast a mild technical recession in both the US and the euro zone, followed by a below-trend recovery. The risks to growth are skewed to the downside, including from negative geopolitical developments, greater persistence in wage and price setting, and financial stability risks.

    • UniCredit

      Inflation is set to decelerate meaningfully in 2023. The Fed and the ECB are likely to finish their tightening cycle by early next year and to start cutting rates in 2024.

    • Wells Fargo

      Long term bond yields rise faster in the US than other G10 markets. The 10-year Treasury nominal yield tops 4% soon, and there is a decent chance it hits 4.25% by March. Germany and UK 10-year yields increase only 10 to 20 basis points by mid-year.

    • Wells Fargo

      Relative growth outlook supports dollar gains. Growth expectations for 2022/23 have mostly moved against the dollar this year. Wells Fargo Economics is much further below consensus on growth in the UK and euro zone than the US. China reopening is a key risk to our view.

    • Wells Fargo

      The ECB and BOE have already shown more concern for slowing growth vs. high inflation, and seem more inclined to pivot away from inflation fighting in a stagflation scenario. In contrast, the Fed’s bar for pivoting seems higher. Private debt has been more contained in the US relative to its peers, but debt has still risen sharply over the last few decades.

    • Wells Fargo Investment Institute

      Wells Fargo Investment Institute expects a recession in early 2023, recovery by midyear, and a rebound that gains strength into year-end. Nevertheless, full-year US economic growth and inflation targets may reflect mostly the recession.

    • Wells Fargo Investment Institute

      We favor US large-cap and US mid-cap equities over international equities and remain tilted toward quality and defensive sectors. Our positioning will likely shift to more cyclical in 2023 as we anticipate the eventual recovery.

    • Wells Fargo Investment Institute

      We expect US Treasury yields to decline in 2023 as we go through an economic recession and in anticipation of policy rate cuts from the Fed.

  7. CHINA
    • Amundi Asset Management

      This low growth-high inflation environment will spread to emerging markets, with China the exception. Amundi has cut China’s GDP forecast to 4.5% from 5.2%. That’s a lot better than China’s anemic growth levels of 2022 (3.2%) and is based on hopes of a stabilization in the housing market and a gradual re-opening of the economy.

    • Amundi Asset Management

      Equities should offer entry points when they have repriced in the coming months, with a preference for US and a quality/value/high dividend tilt. Investors should gradually increase exposure to European and Chinese, cyclical and deep value stocks.

    • Bank of America

      Going into 2023, one expected shock remains: recession. The US, euro area and UK are all expected to see recessions next year, and the rest of the world should continue to weaken, with China a notable exception. The recession shock likely means corporate earnings and economic growth will come under pressure in the first half of the year, while at the same time, China’s reopening offers a reprieve for certain assets.

    • Bank of America

      China’s gradual reopening is underway, with most curbs expected to be removed by the second half of the year. It could be bumpy until later in 2023.

    • Bank of America

      After a volatile start to 2023, emerging markets should produce strong returns. Once inflation and rates peak in the US and China reopens, the outlook for emerging markets should turn more favorable. China equities will likely strengthen due to a reversal in both zero-Covid and property tightening.

    • Bank of America

      After a historically bad year for industrial metals in 2022, cyclical and secular drivers are expected to boost metals in 2023, and copper rallies approximately 20%. Recessions in key markets are a headwind but China’s reopening, a peaking dollar and especially an acceleration of renewables investment should more than offset these negative factors for copper.

    • Bank of America

      Higher for longer oil prices. Russian sanctions, low oil inventories, China’s reopening, and an OPEC that’s willing to cut production in case demand weakens should keep energy prices high. Brent Crude is expected to average $100 per barrel over the course of 2023 and spike to $110 per barrel in the second half of the year.

    • Bank of America

      A strong labor market, ESG, US/China decoupling, and deglobalization/reshoring are expected to keep certain areas of capex strong, even in the event of a recession.

    • Barclays

      Inflation is unlikely to fall quickly in 2023, meaning that monetary policy will have to be restrictive, even with economies in recession. Europe’s energy crunch and US sanctions on China are sources of particular concern.

    • Barclays

      The global economy looks set to enter a stagflationary phase: as Europe and the US contract, growth remains sluggish in China, but inflation fades only gradually. Bringing inflation back to target, while output sinks and employment rises, will test central banks’ resolve.

    • Barclays

      Controls on US semiconductor exports to China are part of a broader strategic agenda that, although manageable for now, could have substantial effects on China’s output and currency if escalated further.

    • BCA Research

      Relative to subdued expectations, growth will surprise to the upside in 2023, as the US averts a recession, Europe experiences a robust recovery following the energy crisis, and China dismantles its zero-Covid policies. Growth will weaken towards the end of 2023, with a mild recession probable in 2024

    • BNP Paribas

      We expect a downturn in global GDP growth in 2023, led by recessions in both the US and the euro zone, with below-trend growth in China and many emerging markets.

    • BNP Paribas

      Global green bond issuance will recover to 2021 levels in 2023, we think, thanks largely to Europe’s consistency and China’s rising issuance.

    • BNY Mellon Investment Management

      With Europe and the UK in or approaching recession, China slowing sharply and the US “needing” one to bring inflation back to target, it is our belief that “Global Recession” remains our single most likely scenario – we give it a 60% probability.

    • BNY Mellon Investment Management

      China’s exit from Covid proves disorderly. Its stop-go approach to lockdowns damages confidence, dents policy efficacy, and results in economic stalling.

    • Brandywine Global Investment Management

      Outside of the US, the global economy is already in recession due to the effects of the strong dollar and a very weak China. China has started to back away, slowly, from the policies that have been depressing activity. If the dollar corrects lower as the US economy decelerates and inflation retreats, and the US avoids a bust, the world economy could be stabilizing by this time next year.

    • Brandywine Global Investment Management

      When we look around the world, we find areas where negative sentiment clearly is excessive and is more than reflected in equity valuations. These include China, Europe, and Japan. We are overweight and expect the outcome to be better than what is reflected in market estimates and valuations.

    • Carmignac

      2023 will be a year of global recession, but investment opportunities will arise from the continued desynchronization between the three largest economic blocs – the US, the euro area and China.

    • Carmignac

      Unlike the bond market, equity prices do not incorporate the scenario of a severe recession, so investors need to be cautious. Japanese equities could benefit from the renewed competitiveness of the economy, boosted by the fall of the yen against the dollar. China will be one of the few areas where economic growth in 2023 will be better than in 2022.

    • Citi

      Global growth is expected to slow to below 2% in 2023 — excluding China, global growth is likely to run at less than a 1% pace, near some definitions of global recession. Inflation next year is likely to gradually decline but remain high on average.

    • Citi

      In equities we take off the European underweight, and shift it to the US. We go long China and stay underweight in Asia excluding China. We reduce the UK equity long to keep the overall level of equity risk unchanged. These positions are FX hedged. For US sectors we remain defensive: long healthcare and utilities against industrials and financials.

    • Citi

      Short copper has been our recession trade in commodities. While the Chinese reopening is a risk to the trade, our metals strategist thinks that copper is unlikely to benefit enough, given that Chinese housing may stop falling, but will not rebound much, and given the US recession. We therefore stay negative. We stay neutral in energy and gold.

    • Citi Global Wealth Investments

      We need to get through a deeper recession in Europe as it struggles through a winter of energy scarcity and inflation. We also need to see a sustained economic recovery in China, whose prior regulatory policies and current Covid policies curtail domestic growth.

    • Credit Suisse

      We expect the euro zone and UK to have slipped into recession, while China is in a growth recession. These economies should bottom out by mid-2023 and begin a weak, tentative recovery – a scenario that rests on the crucial assumption that the US manages to avoid a recession. Economic growth will generally remain low in 2023 against the backdrop of tight monetary conditions and the ongoing reset of geopolitics.

    • Deutsche Bank

      The pace of recovery in 2024 and beyond is likely to be moderate, not a strong bounce as has been seen in the past. Factors that are likely to weigh on global growth for some time to come include uncertainties relating to both the Russia-Ukraine conflict—including a lingering energy-related competitiveness shock in Europe—and the growing US-China strategic competition.

    • Fidelity

      We expect Chinese policymakers to continue to focus on reviving the economy, investing in longer-term areas such as green technologies and infrastructure. Any loosening of Covid restrictions will cause consumption to pick up. The deglobalization that has arisen from the pandemic and tensions with the US will take time to work its way through but is a theme that will grow.

    • Generali Investments

      We forecast a drop in global growth from 3.2% in 2022 to 2.1% in 2023. We expect barely positive US growth (0.3%), with even a mild contraction over the central quarters of 2023. We expect core CPI inflation to end 2023 slightly above 3% year-on-year. Europe is likely entering recession at the turn of the year, while the Covid policy relaxation in China, along with a better credit impulse, will support a mild recovery.

    • Generali Investments

      Selected EM markets offer value after years of underperformance, with dollar fatigue and China’s (mild) rebound both helping – we see EM as a target for positioning early for the post-recession environment.

    • Goldman Sachs

      We expect global growth of just 1.8% in 2023, as US resilience contrasts with a European recession and a bumpy reopening in China.

    • Goldman Sachs

      China is likely to grow slowly in the first half as a reopening initially triggers an increase in Covid cases that keeps caution high, but should accelerate sharply in the second half on a reopening boost. Our longer-run China view remains cautious because of the long slide in the property market as well as slower potential growth (reflecting weakness in both demographics and productivity).

    • HSBC Asset Management

      Attractive valuations, a peaking US dollar and China policy support creates opportunity for EMs in 2023. Importantly, dispersion between individual markets in Asia has widened materially, and stock level dispersion is even greater – reaching a point not seen since the global financial crisis of 2008. This offers diversification benefits along with opportunity for alpha.

    • JPMorgan

      Global GDP growth in 2023 is forecast to climb 1.6%. Developed Market growth is forecast at 0.8%, US growth is forecast at 1%, euro area growth is projected to come in at 0.2%, China’s economy is forecast to grow 4.0% and emerging market growth is forecast at 2.9% in 2023.

    • JPMorgan

      Within developed markets, the UK is still our top pick. As for EM, its recovery is mostly linked to China. Tactically, the Asia reopening trade led by China is overdue and the activity hurdle rate is very easy, with further policy support likely. We expect around 17% upside for China by the end of 2023.

    • JPMorgan

      At 2.9% in 2023, EM growth looks to remain well below its pre-pandemic trend, slowing modestly from 2022. EM excluding China is expected to slow to a below-trend 1.8% with wide regional divergences. In China, the full-year 2023 growth forecast is 4% year-over-year, where two quarters of below-trend growth are assumed as the economy loosens Covid restrictions.

    • Macquarie Asset Management

      China should see a steady acceleration in growth over the course of 2023 if policy easing steps up a gear, as seems likely.

    • NatWest

      We forecast a marked slowdown in global economic growth in 2023: 1.2% from 3.7% in 2022. Our projections are below market consensus and official forecasts (the latter typically do not show recessions—yet). The advanced economies are expected to endure a year of slowdown in 2023 with outright recessions in the US and UK and stagnation in the euro area – while China experiences a mild form of “economic long covid.”

    • NatWest

      If or when the dollar cycle turns is the key FX question heading into 2023. While uncertainties remain and the growth outlook is fraught with risks, a passing of the peak in global economic pessimism could lead to some recovery in European currencies in 2023. China’s slow and uneven reopening from Covid-19 lockdowns reduces appetite to position for a weaker dollar in antipodean currencies, particularly early in 2023, though a more decisive change in policies may alter that backdrop heading out of winter.

    • Ned Davis Research

      We estimate 2.4% real global GDP growth in 2023 and assign a 65% chance of severe global recession. Recession in developed economies and a Chinese reopening present offsetting risks. Global inflation has peaked but will stay higher for longer.

    • Northern Trust

      The firm expects growth to continue to be constrained globally, with some regions arguably already in recession and others on the precipice. It also believes that China’s pandemic-to-endemic transition will continue to materially impact the outlook for global economic demand.

    • Northern Trust

      While China’s reopening incrementally improves the outlook for emerging market equities, the reopening process is likely to be bumpy. We prefer to play the China reopening through non-EM assets, and have a bias for developed market equities where there is greater clarity.

    • Northern Trust

      We see upside to commodities given under-investment creating supply/demand imbalances, as well as increased demand from a China reopening and ongoing Russia disruption. Natural resources companies show much improved fundamentals to help better weather economic headwinds, while cheap valuations already reflect at least a portion of these economic drags.

    • Pictet Asset Management

      Dollar weakness. Slower growth. A big drop in inflation. Muted equities. Bullish bonds. And a China rebound. All of this spells out the need for investors to remain cautious on risk assets – particularly through the first half of the year.

    • Pictet Asset Management

      We forecast global growth to slow to 1.7% in 2023, with stagnation in most developed economies and outright recession in Europe. China’s economy, on the other hand, is likely to re-accelerate as the government relaxes its zero-Covid policy. Overall, growth is likely to pick up again following the first quarter.

    • Principal Asset Management

      A full China reopening will not happen overnight. Yet a roadmap for an end to China’s stringent Covid measures, coupled with additional stimulus policies, should provide the catalyst for a strong rebound in Chinese economic activity and risk assets in 2023. Global commodity prices also stand to benefit from this development.

    • Schroders

      Supported by liquidity and growth, Hong Kong and mainland Chinese equities stand a good chance of outperforming its peers, especially emerging markets.

    • Societe Generale

      We’re expecting several pivots in 2023, which will likely open new chapters in market history. Identifying the right sequence will be all important, with the UK, most EM, and the US set to lead the pack, while the euro area, Japan, China, and most frontier markets likely to be lagging.

    • Societe Generale

      Fair value for the S&P 500 currently reads at 3,650 based on our inflation moderation valuation framework. But we expect negative EPS growth in the first quarter, a Fed pivot in the second, China re-opening in the third and rising US recession risk in the fourth. This should see the S&P 500 trading in a wide range of 3,500 to 4,000, around that 3,650 fair value. Ultimately, we expect the S&P 500 to end 2023 at 3,800.

    • T. Rowe Price

      Valuations and currencies are attractive in many emerging markets. Central bank tightening may have peaked. The path in 2023 is likely to remain uneven, but an easing of China’s zero‑Covid policies could be a significant tailwind.

    • UBS

      The strongest EM disinflation in 20 years should drive 10% to 12% returns in EM duration. EM equities should post similar returns (but later, and with lower Sharpe ratios) as a peaking Fed, China reopening and troughing semis cycle drive strong second-half returns. Currencies are the weakest link. We see EM Asia weakening further in the first half amid a weak trade backdrop, low carry and a need to rebuild depleted FX reserves.

    • UBS

      Against long-term average global growth of 3.5%, the common signal across assets is pricing in 3% global growth. That’s sub-trend but not recessionary. High-yield credit is most optimistic, equities less so. But a deep dive within equities shows that even they are not priced for a recession yet. US equities are pricing in only a 41% probability of recession, compared to 80% in Europe (which is already in recession) and 64% for China. The decline in stocks thus far can be fully explained by the rise in real rates and widening of spreads. The growth downturn is yet to be priced. The lows are not in yet.

    • UBS Asset Management

      While a recession is a very real possibility, investors may be surprised by the resilience of the global economy – even with such a sharp tightening in financial conditions. The labor market will certainly cool, but healthy household balance sheets should continue to support spending in the services sector. Moreover, some of the major drags on the world economy emanating from Europe and China are poised to get better, not worse, between now and the end of the first quarter of 2023.

    • UBS Asset Management

      Our confidence that the bottom is in for China is fortified since these adjustments to Covid-19 policy are taking place in tandem with the most comprehensive support for the property sector to date. A rebounding China may provide a needed boost as developed economies slow, but will also likely lead to higher commodity prices. This too may make it difficult for the Fed and other central banks to back off too quickly.

    • UBS Asset Management

      Going into 2023, we expect global equities at an index level to remain range-bound. They will likely be capped to the upside by the Fed’s desire to keep financial conditions from easing too much. However, we expect some cushion on the downside from a resilient economy and rebounding China.

    • UBS Asset Management

      China’s reopening should fuel a pick-up in domestic oil demand, offsetting some of the downward pressure on inflation from goods prices.

    • UBS Asset Management

      Securing sufficient access to energy is not a problem that will be solved at the end of this winter – and may grow more intense as Chinese demand increases if mobility restrictions are removed.

    • UBS Asset Management

      In currencies, we believe we have moved from a strong, trending US dollar to more of a rangebound trade in USD. Our catalysts for a broad turn in the dollar are for the Fed to stop hiking interest rates, China’s zero-Covid-19 policy to end, and energy pressures in Europe stemming from Russia’s invasion of Ukraine to subside. None of these have fully happened yet, but all three appear to be getting closer. A more rangebound dollar coupled with a global economy that is still growing, but slowing, could provide a very positive backdrop for high carry, commodity-linked currencies. We prefer the Brazilian real and Mexican peso.

    • Vanguard

      Growth is likely to end 2023 flat or slightly negative in most major economies outside of China. Unemployment is likely to rise over the year but nowhere near as high as during the 2008 and 2020 downturns. Through job losses and slowing consumer demand, a downtrend in inflation is likely to persist through 2023.

    • Wells Fargo

      Relative growth outlook supports dollar gains. Growth expectations for 2022/23 have mostly moved against the dollar this year. Wells Fargo Economics is much further below consensus on growth in the UK and euro zone than the US. China reopening is a key risk to our view.

  8. EUROPE
    • Amundi Asset Management

      In Europe, the energy shock, compounded by inflationary pressures related to the aftermath of the Covid crisis, remains the main dampener on growth. The ensuing cost-of-living crisis will drag Europe into recession this winter before a slow recovery. But that doesn’t mean inflation will abate.

    • Amundi Asset Management

      Equities should offer entry points when they have repriced in the coming months, with a preference for US and a quality/value/high dividend tilt. Investors should gradually increase exposure to European and Chinese, cyclical and deep value stocks.

    • AXA Investment Managers

      We expect inflation to fall back towards target over the coming two years as global growth slows, with recessions forecast in both Europe and the US.

    • AXA Investment Managers

      We expect euro zone GDP to contract by 1% between the fourth quarter of 2022 and the first quarter of 2023, followed by a weak recovery. We expect the UK economy to enter recession this year and forecast GDP growth to average 4.3% in 2022, -0.7% in 2023 and 0.8% in 2024.

    • AXA Investment Managers

      Outside of the US, markets have seen significant declines in price-earnings multiples. European markets, for example, would be well placed to rally should there be positive developments in Ukraine. Asia will benefit from a post “zero-Covid” recovery in China. Long term, however, the US valuation premium is not likely to be challenged given the dominance of US technology, a greater level of energy security and more positive demographics. In the near term though, some highly-priced parts of the US market remain vulnerable.

    • Bank of America

      Going into 2023, one expected shock remains: recession. The US, euro area and UK are all expected to see recessions next year, and the rest of the world should continue to weaken, with China a notable exception. The recession shock likely means corporate earnings and economic growth will come under pressure in the first half of the year, while at the same time, China’s reopening offers a reprieve for certain assets.

    • Bank of America

      A recession is all but inevitable in the US, euro area and UK. Expect a mild US recession in the first half of 2023 with a risk that it starts later. Europe likely sees recession this winter with a shallow recovery thereafter as real incomes and likely overtightening pressure demand.

    • Barclays

      The global economy looks set to enter a stagflationary phase: as Europe and the US contract, growth remains sluggish in China, but inflation fades only gradually. Bringing inflation back to target, while output sinks and employment rises, will test central banks’ resolve.

    • BCA Research

      Relative to subdued expectations, growth will surprise to the upside in 2023, as the US averts a recession, Europe experiences a robust recovery following the energy crisis, and China dismantles its zero-Covid policies. Growth will weaken towards the end of 2023, with a mild recession probable in 2024

    • BNP Paribas

      We expect a downturn in global GDP growth in 2023, led by recessions in both the US and the euro zone, with below-trend growth in China and many emerging markets.

    • BNP Paribas

      Global green bond issuance will recover to 2021 levels in 2023, we think, thanks largely to Europe’s consistency and China’s rising issuance.

    • BNY Mellon Investment Management

      With Europe and the UK in or approaching recession, China slowing sharply and the US “needing” one to bring inflation back to target, it is our belief that “Global Recession” remains our single most likely scenario – we give it a 60% probability.

    • Brandywine Global Investment Management

      We favor having more duration exposure in Treasuries as there is more relative tightening of financial conditions in the US than in European bonds or Japanese government bonds.

    • Brandywine Global Investment Management

      The powerful rally in the dollar in 2022 was driven by an alignment of factors that will not persist in 2023. The greenback is expensive, and relative growth prospects point to a weaker dollar next year. Relative monetary policy will also tighten more outside the US, notably in Europe. A weaker greenback will allow for some stability in EM currencies, which we think are broadly undervalued.

    • Brandywine Global Investment Management

      When we look around the world, we find areas where negative sentiment clearly is excessive and is more than reflected in equity valuations. These include China, Europe, and Japan. We are overweight and expect the outcome to be better than what is reflected in market estimates and valuations.

    • Carmignac

      2023 will be a year of global recession, but investment opportunities will arise from the continued desynchronization between the three largest economic blocs – the US, the euro area and China.

    • Carmignac

      In Europe, high energy costs are expected to affect corporate margins and household purchasing power, and thus trigger a recession over this quarter and next. The recession should be mild as high gas storages should prevent energy shortages. However, economic recovery from the second quarter onward is expected to be lackluster, with businesses reluctant to hire and invest due to continued uncertainty over energy supplies and financing costs.

    • Citi

      In equities we take off the European underweight, and shift it to the US. We go long China and stay underweight in Asia excluding China. We reduce the UK equity long to keep the overall level of equity risk unchanged. These positions are FX hedged. For US sectors we remain defensive: long healthcare and utilities against industrials and financials.

    • Citi

      Our only rates underweights are in the European periphery, where we express the increase in supply / QT view. We also remain underweight France against Germany for similar reasons.

    • Citi

      We reduce our negative credit views, by taking European credit back to flat, on the view that the bottom in the ZEW may be in, which has historically been a positive factor. It is hard to see how shocks in 2023 will be even worse for Europe than what we saw 2022. But given the US recession view we stick to underweights in both US investment grade and high yield.

    • Citi Global Wealth Investments

      We need to get through a deeper recession in Europe as it struggles through a winter of energy scarcity and inflation. We also need to see a sustained economic recovery in China, whose prior regulatory policies and current Covid policies curtail domestic growth.

    • Columbia Threadneedle

      While economic growth is slowing, at this point it doesn’t look like a recession in the US will be very deep. In contrast, economies in Europe are under significant stress and a deeper recession there seems likely.

    • Credit Suisse

      We expect the euro zone and UK to have slipped into recession, while China is in a growth recession. These economies should bottom out by mid-2023 and begin a weak, tentative recovery – a scenario that rests on the crucial assumption that the US manages to avoid a recession. Economic growth will generally remain low in 2023 against the backdrop of tight monetary conditions and the ongoing reset of geopolitics.

    • Credit Suisse

      Inflation is peaking in most countries as a result of decisive monetary policy action, and should eventually decline in 2023. Our key assumption is that it will remain above central bank targets in 2023 in most major developed economies, including the US, the UK and the euro zone. We do not forecast interest-rate cuts by any of the developed market central banks next year.

    • Credit Suisse

      In early 2023, demand for cyclical commodities may be soft, while elevated pressure in energy markets should help speed up Europe’s energy transition. Pullbacks in carbon prices could offer opportunities in the medium term, and we think the backdrop for gold should improve as policy normalization nears its end.

    • Deutsche Bank

      The recession we have now been anticipating for nine months draws nearer. A downturn may already be under way in Germany and the euro area overall thanks to the energy shock stemming from the Russia-Ukraine war. Our expectation for a recession in the US by mid-2023 has strengthened on the back of developments since early last spring.

    • Deutsche Bank

      We read the Fed and ECB as being absolutely committed to bringing inflation back to desired levels within the next several years. Although the costs in doing so may be lower than in the past, it will not be possible to do so without at least moderate economic downturns in the US and Europe, and significant increases in unemployment.

    • Deutsche Bank

      Overall, we see output declining 1% in the euro area and 2% in the US during the year ahead. World growth slows to around 2% in this forecast, a rate that has historically been labeled recessionary.

    • Deutsche Bank

      The 10-year Treasury yield is projected to remain in its recent range in the months to come, and then rally moderately around midyear as the US downturn approaches. The German Bund yield should rise to 2.60% by the second quarter before remaining relatively stable in comparison to Treasury yields.

    • DWS

      The looming mild recession in the US and the euro zone will be very different from previous downturns. Thanks to the demographically driven labor market, which is robust even in a downturn, workers will keep their jobs – for the most part – household incomes will remain stable and consumers will continue to consume.

    • DWS

      We expect the US Federal Reserve to raise key interest rates to between 5% and 5.25% next year, while in the euro zone the key rate is likely to rise to 3%. We do not currently see a rate cut next year.

    • DWS

      Inflation rates are expected to fall in 2023 but will still remain at a high level – 6% in the euro zone and 4.1% in the US.

    • DWS

      The recovery after the downturn will also be very modest. Growth rates of 0.3% (2023) and 1.2% (2024) for the euro zone, and 0.4% and 1.3% for the US.

    • DWS

      Tactically, we are quite bullish on European equities. The valuation discount to US stocks of 31% is more than double the average of the past 20 years. The outlook for value stocks, which have a higher weighting in European indexes than in US indexes, remains positive. The days of buying growth stocks at any price are over for now.

    • Fidelity

      Markets want to believe that central banks will blink and change direction, negotiating the economy towards a soft landing. But in our view, a hard landing remains the most likely outcome in 2023. A recession is likely in the US and near certain in Europe and the UK.

    • Franklin Templeton

      Europe is likely already in a recession and the US is likely to fall into one — hopefully a mild one. Risk/reward profiles seem to favor fixed income over global equities, particularly for the first half of 2023.

    • Generali Investments

      The start of 2023 is dominated by a global – if desynchronized – economic slowdown (cold) but still elevated inflation (hot). Our core scenario sees a mild euro-area recession, and an even milder US one. Risks are skewed to the downside: such brutal tightening of monetary policy and financial conditions rarely leaves the economy and markets unscathed.

    • Generali Investments

      We forecast a drop in global growth from 3.2% in 2022 to 2.1% in 2023. We expect barely positive US growth (0.3%), with even a mild contraction over the central quarters of 2023. We expect core CPI inflation to end 2023 slightly above 3% year-on-year. Europe is likely entering recession at the turn of the year, while the Covid policy relaxation in China, along with a better credit impulse, will support a mild recovery.

    • Generali Investments

      We see 10-year Treasuries trading at 3.25% at the end of 2023. We are less confident about Bunds, despite our slightly less hawkish ECB views (relative to market pricing).

    • Generali Investments

      We continue to favor euro investment-grade credit, which is cheaper from a historical perspective than other credit segments (especially global high yield and US credit).

    • Generali Investments

      The fundamentally overvalued dollar is past peak. The Fed’s final hike looming for early spring 2023 is set to reduce rates uncertainty (a previous dollar boost) and path the way to narrowing yield gaps vs major peers. Initially, the transition is likely to prove volatile, though. The euro is still to feel the pain from recession and the energy crunch, leaving the currency shaky near term. But fading recession forces by early spring may mark the start of ensuing capital inflows to the euro area and a more sustained euro recovery.

    • Goldman Sachs

      We expect global growth of just 1.8% in 2023, as US resilience contrasts with a European recession and a bumpy reopening in China.

    • Goldman Sachs

      The euro area and the UK are probably in recession, mainly because of the real income hit from surging energy bills. But we expect only a mild downturn as Europe has already managed to cut Russian gas imports without crushing activity and is likely to benefit from the same post-pandemic improvements that are helping avoid US recession. Given reduced risks of a deep downturn and persistent inflation, we now expect hikes through May with a 3% ECB peak.

    • Hirtle Callaghan

      We are neutral to global equities, believing there is still a lot of uncertainty. Within equities, we are biased to the US. We prefer to own quality growth companies with strong operating fundamentals and lasting pricing power. We are underweight International Developed markets relative to the US given their cyclical exposure, weaker fundamentals and the energy crisis in Europe.

    • HSBC

      In equities, we prefer France (CAC40) vs Sweden (OMX) and Italy (FTSE MIB) over UK equities (FTSE100).

    • HSBC

      In rates, we prefer US Treasuries over Bunds, and Canadian government bonds over US Treasuries. Elsewhere in DM sovereigns, we also favour Spain vs Italy and in EM prefer Mexico vs Brazil.

    • HSBC Asset Management

      European and emerging credit markets seem particularly interesting. Even though the economic situation is difficult, corporate balance sheets are in good shape, which should be a relative support in the months to come.

    • Invesco

      US and European central banks are tightening despite slowing growth, signs that inflation is peaking and the fact that financial conditions have already tightened substantially. We expect these factors to eventually turn the tide, leading to a pause in rate hikes materializing in early 2023.

    • JPMorgan

      Global GDP growth in 2023 is forecast to climb 1.6%. Developed Market growth is forecast at 0.8%, US growth is forecast at 1%, euro area growth is projected to come in at 0.2%, China’s economy is forecast to grow 4.0% and emerging market growth is forecast at 2.9% in 2023.

    • JPMorgan

      The convergence between the US and international markets should continue next year, both on a dollar and local currency basis. The S&P 500 risk-reward relative to other regions remains unattractive. Continental European equities have a likely recession to negotiate and geopolitical tail risks, but the euro zone has never been this attractively priced versus the US. Japan should be relatively resilient due to solid corporate earnings from the economy’s reopening, attractive valuation and smaller inflation risk compared with other markets.

    • JPMorgan

      The growth profile will show divergence: the euro area will likely face a mild recession into late 2022/early 2023, while the US is expected to slide into recession in late 2023.

    • JPMorgan

      In currency markets, further dollar strength is still expected in 2023, but of a lower magnitude and different composition than in 2022. The Fed pause should give the dollar’s rise a breather. Unlike in 2022, lower-yielding currencies like the euro are expected to be more insulated as central banks pause hikes and the focus shifts to addressing slowing growth — but this in turn makes high-beta, emerging market currencies more vulnerable. Weak growth outside the US should also remain a pillar of dollar strength in 2023.

    • JPMorgan Asset Management

      Despite remaining above central bank targets, inflation should start to moderate as the economy slows, the labor market weakens, supply chain pressures continue to ease and Europe manages to diversify its energy supply.

    • JPMorgan Asset Management

      Within credit markets, we believe that an “up-in-quality” approach is warranted. The yields now available on lower quality credit are certainly eye-catching, yet a large part of the repricing year to date has been driven by the increase in government bond yields. High yield credit spreads still sit at or below long-term averages both in the US and Europe. It is possible that spreads widen moderately further as the economic backdrop weakens over the course of 2023.

    • Macquarie Asset Management

      The US will enter recessionary conditions in the first half following the UK and Europe; however, these recessions are likely to be over by mid-2023 and the developed world could see a synchronized recovery towards the end of the year.

    • Macquarie Asset Management

      Energy security will continue to be a dominant theme for the year ahead. Macquarie Asset Management anticipates that although Europe may have enough resources to see it through this winter through increased liquified natural gas imports and reliance on other fuel sources, the biggest challenge will occur in the coming year.

    • Macquarie Asset Management

      We think it likely that both the UK (as of the third quarter 2022) and the euro area (starting fourth quarer 2022) are already in recession. For the US, we think recession risks are high enough for it to be considered our base case, although we don’t expect one to start until the first half of 2023. These recessions are likely to be relatively mild, however, with peak-to-trough falls in gross domestic product (GDP) ranging from -1.5% in the US to -2.5% in the UK.

    • Morgan Stanley

      Morgan Stanley fixed-income strategists forecast high single-digit returns through the end of 2023 in German Bunds, Italian Government bonds (BTPs) and European investment-grade bonds, as well as in Treasuries, investment-grade bonds, municipal bonds, mortgage-backed securities issued by government sponsored agencies and AAA-rated securities in the US.

    • Morgan Stanley

      European equities could offer a modest upside, with a forecasted 6.3% total return over 2023 as lower inflation nudges stock valuations higher.

    • NatWest

      We forecast a marked slowdown in global economic growth in 2023: 1.2% from 3.7% in 2022. Our projections are below market consensus and official forecasts (the latter typically do not show recessions—yet). The advanced economies are expected to endure a year of slowdown in 2023 with outright recessions in the US and UK and stagnation in the euro area – while China experiences a mild form of “economic long covid.”

    • NatWest

      Whilst there are some tentative hints that policymakers are becoming less hawkish, we do not expect any policy “pivot” (i.e. rate cuts) in 2023. The scale and persistence of the inflation overshoot in 2022 is likely to have resulted in reaction functions becoming more reactive for policy easing. Policy rate cuts in the US, euro area and UK are not expected until 2024.

    • NatWest

      Peak policy rates are well priced but fade any rate cut rhetoric. We see rates rates on hold through 2023 at 5% in the US, 2.25% in Europe and 4.25% in the UK. A more gradual path to peak rates than markets are currently pricing should permit higher rates for longer.

    • NatWest

      In the US we see bullish steepening risks as markets price a dovish pivot in the second half. In Europe and the UK, we remain short duration due to heavy supply, quantitative tightening, region risk and weak demand themes. Bearish steepeners out to 10 years. In Japan we see a change of leadership at the BOJ creating flexibility in yield curve control.

    • NatWest

      2023 is forecast to see significant falls in inflation as the energy shock unwinds, though we expect CPI to continue to overshoot targets in the US, euro area and UK. The energy unwind is a necessary, but not a sufficient, condition for inflation to return sustainably to target.

    • NatWest

      Europe is already in recession. Inflation will slow and the ECB will slow with it. But inflation risks are on the high side. A second phase of inflation, permitted by recovery in the second half, is more likely than a downturn that leads to rate cuts. Bearish risks to longer-term rates form a long list. We target 2.75% in 10-year bunds. This contrasts with our US rates views. Buy five-year Treasuries vs 10-year bunds – a hybrid steepener that captures the more advanced Fed and our global steepening bias.

    • NatWest

      If or when the dollar cycle turns is the key FX question heading into 2023. While uncertainties remain and the growth outlook is fraught with risks, a passing of the peak in global economic pessimism could lead to some recovery in European currencies in 2023. China’s slow and uneven reopening from Covid-19 lockdowns reduces appetite to position for a weaker dollar in antipodean currencies, particularly early in 2023, though a more decisive change in policies may alter that backdrop heading out of winter.

    • Ned Davis Research

      It’s highly likely that the European economy fell into recession in the fourth quarter of 2022 due to the energy shock brought by Russia’s war and tighter monetary policy. We forecast a 0% to 0.5% growth rate for the euro zone in 2023, as the recession continues into next year. We expect the recession to be mild. The outlook, however, is uncertain and is almost entirely driven by energy.

    • Ned Davis Research

      We are neutral on US stocks on an absolute basis and relative to bonds and cash. Macro and earnings concerns are offset by extreme pessimism and technical improvements. We favor small-caps over large-caps and Value over Growth. We are overweight Europe equities excluding the UK and marketweight on all other international regions.

    • Ned Davis Research

      We are watching for better Technology stock performance to support global breadth and US relative strength. While a risk for Europe is that too much good news has been discounted too early, a choppy uptrend is likely for European equities. Cyclical sectors should outperform defensive sectors.

    • Northern Trust

      In equities, risks surrounding fundamentals are tilted to the downside given the extent of cumulative central bank tightening. Pockets of economic durability should limit a US earnings slowdown, while monetary policy offers a bit more support elsewhere. Keeping us equal-weight is the potential for sentiment upside. From beaten down levels, sentiment has runway to improve — particularly in Europe where the valuation discount is steep.

    • Pictet Asset Management

      We forecast global growth to slow to 1.7% in 2023, with stagnation in most developed economies and outright recession in Europe. China’s economy, on the other hand, is likely to re-accelerate as the government relaxes its zero-Covid policy. Overall, growth is likely to pick up again following the first quarter.

    • Pictet Asset Management

      At the same time, we expect inflation to slow sharply, from a global peak of 8.3% to 3.5% by the end of 2023. That will be enough for major central banks to end their tightening cycles, led by the US Federal Reserve, but not enough for them to start cutting rates. We see Fed funds peaking at 4.75%, with an end to its quantitative tightening program in the third quarter of the year. We see the ECB taking over as the major source of policy tightening as the Fed’s slows.

    • Pimco

      As we navigate a period of elevated inflation and an economic slowdown, our starting point is one of caution. Pimco’s business cycle models forecast a recession across Europe, the UK, and the US in the next year, and the major central banks are pressing ahead with policy tightening despite increasing strain in financial markets.

    • Principal Asset Management

      The US dollar’s bull run has likely been exhausted and, once it has convincingly changed direction, should brighten the relative outlook for both emerging markets and European global risk assets. The relatively attractive valuations outside the US suggest investors stand to gain convincingly through global diversification.

    • Robeco

      For the euro zone, the consensus of 0.4% real GDP growth in 2023 is fairly consistent with leading indicators like decelerating broad money growth in the region. But we flag the risk of excess tightening by the ECB, especially to get imported inflation under control.

    • Societe Generale

      We’re expecting several pivots in 2023, which will likely open new chapters in market history. Identifying the right sequence will be all important, with the UK, most EM, and the US set to lead the pack, while the euro area, Japan, China, and most frontier markets likely to be lagging.

    • Societe Generale

      We expect euro investment grade to generate excess returns of more than 5% in 2023 and total returns of just under 10%, which would be the best performance in a decade. A bull decompression in the early stages of the rally should prompt IG to outperform high yield, Single A to outperform BBB and Banks and Utilities to outperform Industrials and Cyclicals. US expected return on credit is even higher, as we expect a milder recession there.

    • Societe Generale

      A premature end to Russia’s war on Ukraine is a possibility. European assets would benefit most, and although we are neutral on European equities (cheap cyclicals would soar in that scenario), we clearly give ourselves some protection through our increased euro exposure.

    • T. Rowe Price

      Cheaper valuations reflect the current challenges from high inflation, recession risks, and an energy crisis in Europe. An easing of these headwinds and continued fiscal support could provide upside over the course of 2023. Valuations are compelling, but high energy costs and weakening manufacturing activity make a European recession likely. We expect the ECB’s resolve on fighting inflation to ease as economic growth wanes in 2023.

    • T. Rowe Price

      In equities, the team is slightly underweighting US and European equities. It is overweighting emerging markets, Japan, international versus US stocks, and US small-capitalization stocks versus their large-cap counterparts.

    • T. Rowe Price

      In fixed income, the team is slightly underweight US and other developed market investment grade bonds. The team favors emerging markets, floating rate loans, and global high yield.

    • Truist Wealth

      Our base case calls for a US recession in 2023, even though economic growth in the US is expected to remain stronger relative to global peers. Europe is likely to see the deepest recession, with countries closer to Ukraine and Russia being hit especially hard.

    • Truist Wealth

      In the coming year, we expect inflation fears to evolve into growth concerns, particularly in Europe. The European Central Bank will likely be less aggressive in their policy response given Europe’s challenging macro backdrop. This would cap upward moves in euro zone yields. As a result, strong foreign demand for the relative yield advantage and safe-haven quality offered by US government debt should apply some downward pressure on US yields.

    • UBS

      Stocks are pricing in only 41% and 80% probabilities of a recession in the US and Europe, respectively. Weak growth and earnings drag the market lower before a fall in rates helps it bottom at 3,200 in the second quarter and lifts it to 3,900 by the end of 2023. With revenues and margins under greater pressure, Eurostoxx is likely to do worse, bottoming in the second quarter at 330 & ending 2023 at 385. As a part of our top trades we lay out stock lists of disinflation beneficiaries. Quality and Growth are likely to perform better than Value.

    • UBS

      Given our expectations of sharper US disinflation and rapid Fed easing in 2023, we expect US 10-year yields will fall 150 basis points to end the year at 2.65%. Ten-year real yields retrace half of this year’s rise to end 2023 at 65bps. We expect 10-year Bunds and Gilts to underperform Treasuries as “single mandate” ECB and BOE stay on hold for longer. JGBs do little as the BOJ persists with YCC. Australia and Korea duration are our favored APAC picks.

    • UBS

      Unlike equities, we prefer EU high-yield to US high-yield in credit. We also prefer investment grade over high yield and leveraged loans in all regions.

    • UBS

      Against long-term average global growth of 3.5%, the common signal across assets is pricing in 3% global growth. That’s sub-trend but not recessionary. High-yield credit is most optimistic, equities less so. But a deep dive within equities shows that even they are not priced for a recession yet. US equities are pricing in only a 41% probability of recession, compared to 80% in Europe (which is already in recession) and 64% for China. The decline in stocks thus far can be fully explained by the rise in real rates and widening of spreads. The growth downturn is yet to be priced. The lows are not in yet.

    • UBS Asset Management

      While a recession is a very real possibility, investors may be surprised by the resilience of the global economy – even with such a sharp tightening in financial conditions. The labor market will certainly cool, but healthy household balance sheets should continue to support spending in the services sector. Moreover, some of the major drags on the world economy emanating from Europe and China are poised to get better, not worse, between now and the end of the first quarter of 2023.

    • UBS Asset Management

      In US and European credit,, investment grade bond yields look increasingly attractive as a balance between a potentially resilient economy and more range-bound government bond yields.

    • UniCredit

      We forecast a mild technical recession in both the US and the euro zone, followed by a below-trend recovery. The risks to growth are skewed to the downside, including from negative geopolitical developments, greater persistence in wage and price setting, and financial stability risks.

    • UniCredit

      Inflation is set to decelerate meaningfully in 2023. The Fed and the ECB are likely to finish their tightening cycle by early next year and to start cutting rates in 2024.

    • UniCredit

      2023 is set to inherit non-trivial economic and market risks and we suggest entering the year with a defensive allocation, preferring fixed income to equities and developed to emerging market exposure. Bonds offer attractive carry and superior risk-adjusted return prospects, in our view, while equities will face weak profitability and initially little tailwind from valuations. We like investment-grade and high-yield credit in Europe and retain a cautious view on duration.

    • UniCredit

      We expect a solid year in European credit – both in financials and non-financials – though spread tightening is likely to take place only in the second half. Lower tiers of the capital structure and high yield are likely to outperform, mainly thanks to high carry. We prefer HY NFI and Bank AT1s over IG seniors.

    • Wells Fargo

      The dollar will stay stubbornly strong through the first half of 2023. The market is too sanguine the European/UK energy situation – deeper-than-expected recessions in euro zone/UK vs. resilient US growth keeps upward pressure on the broad dollar. By mid-year we call for EURUSD to return to parity and GBPUSD to reach 1.11.

    • Wells Fargo

      Long term bond yields rise faster in the US than other G10 markets. The 10-year Treasury nominal yield tops 4% soon, and there is a decent chance it hits 4.25% by March. Germany and UK 10-year yields increase only 10 to 20 basis points by mid-year.

    • Wells Fargo

      Relative growth outlook supports dollar gains. Growth expectations for 2022/23 have mostly moved against the dollar this year. Wells Fargo Economics is much further below consensus on growth in the UK and euro zone than the US. China reopening is a key risk to our view.

    • Wells Fargo

      The ECB and BOE have already shown more concern for slowing growth vs. high inflation, and seem more inclined to pivot away from inflation fighting in a stagflation scenario. In contrast, the Fed’s bar for pivoting seems higher. Private debt has been more contained in the US relative to its peers, but debt has still risen sharply over the last few decades.

  9. UK
    • AXA Investment Managers

      We expect euro zone GDP to contract by 1% between the fourth quarter of 2022 and the first quarter of 2023, followed by a weak recovery. We expect the UK economy to enter recession this year and forecast GDP growth to average 4.3% in 2022, -0.7% in 2023 and 0.8% in 2024.

    • Bank of America

      Going into 2023, one expected shock remains: recession. The US, euro area and UK are all expected to see recessions next year, and the rest of the world should continue to weaken, with China a notable exception. The recession shock likely means corporate earnings and economic growth will come under pressure in the first half of the year, while at the same time, China’s reopening offers a reprieve for certain assets.

    • Bank of America

      A recession is all but inevitable in the US, euro area and UK. Expect a mild US recession in the first half of 2023 with a risk that it starts later. Europe likely sees recession this winter with a shallow recovery thereafter as real incomes and likely overtightening pressure demand.

    • Citi

      In equities we take off the European underweight, and shift it to the US. We go long China and stay underweight in Asia excluding China. We reduce the UK equity long to keep the overall level of equity risk unchanged. These positions are FX hedged. For US sectors we remain defensive: long healthcare and utilities against industrials and financials.

    • Credit Suisse

      We expect the euro zone and UK to have slipped into recession, while China is in a growth recession. These economies should bottom out by mid-2023 and begin a weak, tentative recovery – a scenario that rests on the crucial assumption that the US manages to avoid a recession. Economic growth will generally remain low in 2023 against the backdrop of tight monetary conditions and the ongoing reset of geopolitics.

    • Credit Suisse

      Inflation is peaking in most countries as a result of decisive monetary policy action, and should eventually decline in 2023. Our key assumption is that it will remain above central bank targets in 2023 in most major developed economies, including the US, the UK and the euro zone. We do not forecast interest-rate cuts by any of the developed market central banks next year.

    • Fidelity

      Markets want to believe that central banks will blink and change direction, negotiating the economy towards a soft landing. But in our view, a hard landing remains the most likely outcome in 2023. A recession is likely in the US and near certain in Europe and the UK.

    • Goldman Sachs

      The euro area and the UK are probably in recession, mainly because of the real income hit from surging energy bills. But we expect only a mild downturn as Europe has already managed to cut Russian gas imports without crushing activity and is likely to benefit from the same post-pandemic improvements that are helping avoid US recession. Given reduced risks of a deep downturn and persistent inflation, we now expect hikes through May with a 3% ECB peak.

    • HSBC

      In equities, we prefer France (CAC40) vs Sweden (OMX) and Italy (FTSE MIB) over UK equities (FTSE100).

    • JPMorgan

      Within developed markets, the UK is still our top pick. As for EM, its recovery is mostly linked to China. Tactically, the Asia reopening trade led by China is overdue and the activity hurdle rate is very easy, with further policy support likely. We expect around 17% upside for China by the end of 2023.

    • Macquarie Asset Management

      The US will enter recessionary conditions in the first half following the UK and Europe; however, these recessions are likely to be over by mid-2023 and the developed world could see a synchronized recovery towards the end of the year.

    • Macquarie Asset Management

      We think it likely that both the UK (as of the third quarter 2022) and the euro area (starting fourth quarer 2022) are already in recession. For the US, we think recession risks are high enough for it to be considered our base case, although we don’t expect one to start until the first half of 2023. These recessions are likely to be relatively mild, however, with peak-to-trough falls in gross domestic product (GDP) ranging from -1.5% in the US to -2.5% in the UK.

    • NatWest

      We forecast a marked slowdown in global economic growth in 2023: 1.2% from 3.7% in 2022. Our projections are below market consensus and official forecasts (the latter typically do not show recessions—yet). The advanced economies are expected to endure a year of slowdown in 2023 with outright recessions in the US and UK and stagnation in the euro area – while China experiences a mild form of “economic long covid.”

    • NatWest

      Whilst there are some tentative hints that policymakers are becoming less hawkish, we do not expect any policy “pivot” (i.e. rate cuts) in 2023. The scale and persistence of the inflation overshoot in 2022 is likely to have resulted in reaction functions becoming more reactive for policy easing. Policy rate cuts in the US, euro area and UK are not expected until 2024.

    • NatWest

      Peak policy rates are well priced but fade any rate cut rhetoric. We see rates rates on hold through 2023 at 5% in the US, 2.25% in Europe and 4.25% in the UK. A more gradual path to peak rates than markets are currently pricing should permit higher rates for longer.

    • NatWest

      2023 is forecast to see significant falls in inflation as the energy shock unwinds, though we expect CPI to continue to overshoot targets in the US, euro area and UK. The energy unwind is a necessary, but not a sufficient, condition for inflation to return sustainably to target.

    • Ned Davis Research

      We are neutral on US stocks on an absolute basis and relative to bonds and cash. Macro and earnings concerns are offset by extreme pessimism and technical improvements. We favor small-caps over large-caps and Value over Growth. We are overweight Europe equities excluding the UK and marketweight on all other international regions.

    • Pimco

      As we navigate a period of elevated inflation and an economic slowdown, our starting point is one of caution. Pimco’s business cycle models forecast a recession across Europe, the UK, and the US in the next year, and the major central banks are pressing ahead with policy tightening despite increasing strain in financial markets.

    • UBS

      Given our expectations of sharper US disinflation and rapid Fed easing in 2023, we expect US 10-year yields will fall 150 basis points to end the year at 2.65%. Ten-year real yields retrace half of this year’s rise to end 2023 at 65bps. We expect 10-year Bunds and Gilts to underperform Treasuries as “single mandate” ECB and BOE stay on hold for longer. JGBs do little as the BOJ persists with YCC. Australia and Korea duration are our favored APAC picks.

    • Wells Fargo

      Long term bond yields rise faster in the US than other G10 markets. The 10-year Treasury nominal yield tops 4% soon, and there is a decent chance it hits 4.25% by March. Germany and UK 10-year yields increase only 10 to 20 basis points by mid-year.

    • Wells Fargo

      Relative growth outlook supports dollar gains. Growth expectations for 2022/23 have mostly moved against the dollar this year. Wells Fargo Economics is much further below consensus on growth in the UK and euro zone than the US. China reopening is a key risk to our view.

    • Wells Fargo

      The ECB and BOE have already shown more concern for slowing growth vs. high inflation, and seem more inclined to pivot away from inflation fighting in a stagflation scenario. In contrast, the Fed’s bar for pivoting seems higher. Private debt has been more contained in the US relative to its peers, but debt has still risen sharply over the last few decades.

  10. APAC
    • AXA Investment Managers

      Outside of the US, markets have seen significant declines in price-earnings multiples. European markets, for example, would be well placed to rally should there be positive developments in Ukraine. Asia will benefit from a post “zero-Covid” recovery in China. Long term, however, the US valuation premium is not likely to be challenged given the dominance of US technology, a greater level of energy security and more positive demographics. In the near term though, some highly-priced parts of the US market remain vulnerable.

    • Citi

      In equities we take off the European underweight, and shift it to the US. We go long China and stay underweight in Asia excluding China. We reduce the UK equity long to keep the overall level of equity risk unchanged. These positions are FX hedged. For US sectors we remain defensive: long healthcare and utilities against industrials and financials.

    • Fidelity

      Emerging markets and Asian countries, with a weaker growth correlation with the US and Europe, present one way to increase diversification, while cash and quality investment grade securities offer defensive characteristics.

    • HSBC Asset Management

      Attractive valuations, a peaking US dollar and China policy support creates opportunity for EMs in 2023. Importantly, dispersion between individual markets in Asia has widened materially, and stock level dispersion is even greater – reaching a point not seen since the global financial crisis of 2008. This offers diversification benefits along with opportunity for alpha.

    • JPMorgan

      Within developed markets, the UK is still our top pick. As for EM, its recovery is mostly linked to China. Tactically, the Asia reopening trade led by China is overdue and the activity hurdle rate is very easy, with further policy support likely. We expect around 17% upside for China by the end of 2023.

    • Schroders

      Schroders expects a reversal in the performance of global currencies in 2023, where the US dollar may weaken. On the other hand, the Japanese yen may regain its strength, providing a hedge against the impact of a semiconductor downcycle on other Asian economies and currencies.

    • Societe Generale

      Asia is at the end of the earnings downgrade cycle, making cheap Asian assets look attractive.

    • UBS

      Given our expectations of sharper US disinflation and rapid Fed easing in 2023, we expect US 10-year yields will fall 150 basis points to end the year at 2.65%. Ten-year real yields retrace half of this year’s rise to end 2023 at 65bps. We expect 10-year Bunds and Gilts to underperform Treasuries as “single mandate” ECB and BOE stay on hold for longer. JGBs do little as the BOJ persists with YCC. Australia and Korea duration are our favored APAC picks.

    • UBS

      As US carry advantage and rates volatility fade more rapidly than in a typical recession, we expect the dollar to slowly fall against G-10 currencies. Its fall should be limited, however, by weak global growth, a key driver for the dollar. We prefer AUD and NZD over CAD, and NOK over SEK. We see Asia in particular under pressure in the first half amid a weak trade backdrop, low carry and a need to rebuild depleted FX reserves.

    • UBS

      The strongest EM disinflation in 20 years should drive 10% to 12% returns in EM duration. EM equities should post similar returns (but later, and with lower Sharpe ratios) as a peaking Fed, China reopening and troughing semis cycle drive strong second-half returns. Currencies are the weakest link. We see EM Asia weakening further in the first half amid a weak trade backdrop, low carry and a need to rebuild depleted FX reserves.

  11. JAPAN
    • Brandywine Global Investment Management

      We favor having more duration exposure in Treasuries as there is more relative tightening of financial conditions in the US than in European bonds or Japanese government bonds.

    • Brandywine Global Investment Management

      When we look around the world, we find areas where negative sentiment clearly is excessive and is more than reflected in equity valuations. These include China, Europe, and Japan. We are overweight and expect the outcome to be better than what is reflected in market estimates and valuations.

    • Carmignac

      Unlike the bond market, equity prices do not incorporate the scenario of a severe recession, so investors need to be cautious. Japanese equities could benefit from the renewed competitiveness of the economy, boosted by the fall of the yen against the dollar. China will be one of the few areas where economic growth in 2023 will be better than in 2022.

    • JPMorgan

      The convergence between the US and international markets should continue next year, both on a dollar and local currency basis. The S&P 500 risk-reward relative to other regions remains unattractive. Continental European equities have a likely recession to negotiate and geopolitical tail risks, but the euro zone has never been this attractively priced versus the US. Japan should be relatively resilient due to solid corporate earnings from the economy’s reopening, attractive valuation and smaller inflation risk compared with other markets.

    • NatWest

      In the US we see bullish steepening risks as markets price a dovish pivot in the second half. In Europe and the UK, we remain short duration due to heavy supply, quantitative tightening, region risk and weak demand themes. Bearish steepeners out to 10 years. In Japan we see a change of leadership at the BOJ creating flexibility in yield curve control.

    • Societe Generale

      We’re expecting several pivots in 2023, which will likely open new chapters in market history. Identifying the right sequence will be all important, with the UK, most EM, and the US set to lead the pack, while the euro area, Japan, China, and most frontier markets likely to be lagging.

    • T. Rowe Price

      In equities, the team is slightly underweighting US and European equities. It is overweighting emerging markets, Japan, international versus US stocks, and US small-capitalization stocks versus their large-cap counterparts.

  12. PIVOT
    • Amundi Asset Management

      2023 will be a two-speed year, with plenty of risks to watch out for. Bonds are back, market valuations are more attractive, and a Fed pivot in the first part of the year should trigger interesting entry points.

    • Amundi Asset Management

      Differences between emerging markets will intensify in 2023. Countries with a more benign inflation and monetary outlook such as in Latin America and EMEA are attractive. A Fed pivot should boost the appeal of EM equities generally later in the year.

    • AXA Investment Managers

      The Fed won’t want to cut rates as quickly as the market is currently pricing (second half of 2023) since they will want to be satisfied that they have properly broken the back of inflation. The price to pay for this will be a recession in the first three quarters of 2023 in the US which will trigger the usual adverse ripple effects over the entirety of the world economy next year. Any recession looks set to be mild, though our US GDP outlook of -0.2% and 0.9% for 2023 and 2024 is lower than consensus. Interest rates appear close to a peak – we estimate 5% – and are likely to remain at that level until 2024.

    • AXA Investment Managers

      A Fed pivot is certainly getting closer and will mark an inflection in US dollar trajectory, though not a collapse. The yen should be the main beneficiary. The euro and sterling are facing new structural challenges that may not disappear any time soon.

    • Bank of America

      US rates stay elevated but expect a decline by year end 2023. The yield curve is expected to dis-invert and rates volatility should fall. Both two-year and 10-year US Treasuries should end 2023 at 3.25%. Sectors hurt by rising rates in 2022 may benefit in 2023.

    • Carmignac

      On the sovereign bond side, weaker economic growth is generally associated with lower bond yields. However, given the inflationary environment, while the pace of tightening may slow or even stop, it is unlikely to reverse soon.

    • Citi

      The hurdle for the Fed to pause is obviously lower than for the Fed to cut. And duration will trade well when the Fed is almost done hiking. Cuts will not be required. As such we are closer to buying bonds than buying equities. But for now we remain neutral on US rates, and instead buy in EM.

    • Citi Global Wealth Investments

      When the Fed does finally reduce rates for the first time in 2023 – an event that we expect after several negative employment reports – it will do so at a time when the economy is already weakening. We think this will mark a turning point that will portend the beginning of a sustained economic recovery in the US and beyond over the coming year.

    • Credit Suisse

      Inflation is peaking in most countries as a result of decisive monetary policy action, and should eventually decline in 2023. Our key assumption is that it will remain above central bank targets in 2023 in most major developed economies, including the US, the UK and the euro zone. We do not forecast interest-rate cuts by any of the developed market central banks next year.

    • Credit Suisse

      We see 2023 as a tale of two halves. Markets are likely to first focus on the “higher rates for longer” theme, which should lead to a muted equity performance. We expect sectors and regions with stable earnings, low leverage and pricing power to fare better in this environment. Once we get closer to a pivot by central banks away from tight monetary policy, we would rotate toward interest-rate-sensitive sectors with a growth tilt.

    • Deutsche Bank

      The current mix of aggressive central bank rate hiking to deal with elevated inflation, geopolitical uncertainty and elevated commodity prices, and impending recession in the euro area and US has been a toxic mix for emerging markets. We see this sector remaining under pressure well into 2023, but then beginning to trend more positive later in the year as inflation begins to recede and central bank policy begins to reverse both domestically and by the Fed.

    • DWS

      We expect the US Federal Reserve to raise key interest rates to between 5% and 5.25% next year, while in the euro zone the key rate is likely to rise to 3%. We do not currently see a rate cut next year.

    • Fidelity

      Markets want to believe that central banks will blink and change direction, negotiating the economy towards a soft landing. But in our view, a hard landing remains the most likely outcome in 2023. A recession is likely in the US and near certain in Europe and the UK.

    • Fidelity

      Rates should eventually plateau, but if inflation remains sticky above 2%, they are unlikely to reduce quickly even if banks take other measures to maintain liquidity and manage increasingly challenging debt piles.

    • Fidelity

      In the US, the Fed appears set on raising rates significantly beyond neutral levels to bring inflation under control. We do not expect a pivot until there is a meaningful deterioration in hard data, especially inflation and the labor market. Although we do not expect it soon, when it does arrive, it should boost risky assets such as equities and credit, as well as government bonds.

    • Generali Investments

      We see the Fed peak at 5% in March, but the risks lie towards the Fed hiking more as consumer demand and capex initially prove resilient. We do not see Fed rate cuts before the fourth quarter, i.e. not as fast as the implied curve is suggesting.

    • Generali Investments

      For now, we recommend a small underweight in equities (and high-yield), which we stand ready to increase once the current rebound wanes. Further into 2023, a more risk-prone stance may become suitable once the Fed starts to envisage first rate cuts and recession risks are adequately priced.

    • Goldman Sachs

      The US should narrowly avoid recession as core PCE inflation slows from 5% now to 3% in late 2023 with a 0.5 percentage point rise in the unemployment rate. To keep growth below potential amidst stronger real income growth, we now see the Fed hiking to a peak of 5-5.25%. We don’t expect cuts in 2023.

    • Goldman Sachs

      Markets are now pricing in a more dovish Federal Reserve, signalling an expectation that the US central bank will begin lowering its funds rate by the end of next year. Our economists, by contrast, don’t expect any rate cuts in 2023. If the US economy turns out to be more resilient than anticipated and inflation stickier in 2023, stock markets and Treasuries could fall in price.

    • HSBC Asset Management

      A turnaround could follow later in the year amid cooling inflation – aided by weaker labor and housing markets – which means central banks can pause rate hikes, with even the prospect of rate cuts later in the year. With better visibility on the policy and economic outlook, investor sentiment will recover from rock bottom levels to take advantage of much improved valuations in riskier asset classes such as equities and high-yield corporate bonds.

    • Invesco

      The strong-dollar cycle will likely cease as the US Federal Reserve signals a pause in its tightening cycle. Given how expensive the dollar has become, we would expect it to weaken once the Fed pivots.

    • JPMorgan

      The good news is that central banks will likely be forced to pivot and signal cutting interest rates sometime next year, which should result in a sustained recovery of asset prices and subsequently the economy by the end of 2023. The bad news is that in order for that pivot to happen, we will need to see a combination of more economic weakness, an increase in unemployment, market volatility, decline in levels of risky assets and a fall in inflation.

    • JPMorgan

      In the first half of 2023, the S&P 500 is expected to re-test the lows of 2022, but a pivot from the Fed could drive an asset recovery later in the year, pushing the S&P 500 to 4,200 by year-end.

    • NatWest

      Whilst there are some tentative hints that policymakers are becoming less hawkish, we do not expect any policy “pivot” (i.e. rate cuts) in 2023. The scale and persistence of the inflation overshoot in 2022 is likely to have resulted in reaction functions becoming more reactive for policy easing. Policy rate cuts in the US, euro area and UK are not expected until 2024.

    • NatWest

      Peak policy rates are well priced but fade any rate cut rhetoric. We see rates rates on hold through 2023 at 5% in the US, 2.25% in Europe and 4.25% in the UK. A more gradual path to peak rates than markets are currently pricing should permit higher rates for longer.

    • NatWest

      In the US we see bullish steepening risks as markets price a dovish pivot in the second half. In Europe and the UK, we remain short duration due to heavy supply, quantitative tightening, region risk and weak demand themes. Bearish steepeners out to 10 years. In Japan we see a change of leadership at the BOJ creating flexibility in yield curve control.

    • NatWest

      While earnings will face increased headwinds in the first half, we nevertheless see scope for IG corporates to post a strong annual total return, helped by an (eventual) rates pivot by central banks, and a healthy excess return by the second half. Such an outlook demands investors increase their weighting into cyclicals as 2023 evolves.

    • NatWest

      Raging inflation could have a damaging impact on the financial condition of many leveraged corporations in the leveraged asset class. Bond and loan prices already reflect much of the stress that could have a material impact on credit metrics. Investors should be mindful of the inevitable interest rate pivot from central banks.

    • NatWest

      Europe is already in recession. Inflation will slow and the ECB will slow with it. But inflation risks are on the high side. A second phase of inflation, permitted by recovery in the second half, is more likely than a downturn that leads to rate cuts. Bearish risks to longer-term rates form a long list. We target 2.75% in 10-year bunds. This contrasts with our US rates views. Buy five-year Treasuries vs 10-year bunds – a hybrid steepener that captures the more advanced Fed and our global steepening bias.

    • Ned Davis Research

      Continued adjustment to pandemic imbalances, tight labor markets, and the risk of further supply shocks (either geopolitical or weather related) will likely see inflation rates remain above central bank targets through the end of 2023, indicating pivots are unlikely in the near-term.

    • Northern Trust

      Northern Trust expects 2023 to be a turbulent year as conditions pivot from inflation and monetary policy fears to a weak global economy, but the firm also expects market volatility to somewhat temper due to lower inflation and a pause in central bank interest rate increases. A reduction in rates is not seen as likely. We see downside risk from lower corporate profits and revenues, but with upside potential from better sentiment.

    • Pictet Asset Management

      At the same time, we expect inflation to slow sharply, from a global peak of 8.3% to 3.5% by the end of 2023. That will be enough for major central banks to end their tightening cycles, led by the US Federal Reserve, but not enough for them to start cutting rates. We see Fed funds peaking at 4.75%, with an end to its quantitative tightening program in the third quarter of the year. We see the ECB taking over as the major source of policy tightening as the Fed’s slows.

    • Pimco

      In the US, unlike previous cycles, we do not expect a rapid transition from Fed hikes to rate cuts and the ensuing market support. But even without a significant rate rally, US Treasury yields are already high enough to offer compelling return just from the income alone. In addition, a stabilization in rates could draw more investors back into the asset class.

    • Robeco

      With core inflation still well above target in the first half of 2023, central bankers will likely stretch the pause after the hiking cycle and be reluctant to cut interest rates, even in the face of a US recession.

    • Robeco

      When unemployment surges towards 5% and disinflation accelerates on the back of a NBER recession in the second half of 2023, the Fed (and other central banks) will start cutting. Therefore, we think the Fed policy rate will be below the 4.6% December 2023 level implied in the Fed funds futures curve.

    • Robeco

      While the dollar bull market could prove to be more persistent as the Fed shows reluctance to pivot and as potential liquidity events trigger safe-haven flows towards the US, the dollar bull run will likely peak in 2023. This will be on the back of declining rate differentials between the US and the rest of the world, and a peak in US growth versus the rest of the world.

    • Schroders

      The overall market outlook for 2023 will largely depend on the direction of US Fed monetary policy, which the firm sees pivoting, and whether or not a global recession would become a reality, which the team considers likely.

    • Schroders

      Global central banks are likely to press ahead with more rate hikes before a pivot, weighing onto economic growth prospects. We see market expectations of a peak in US interest rates at close to 5% as being appropriate, after which the pace of hikes will likely slow.

    • Societe Generale

      We’re expecting several pivots in 2023, which will likely open new chapters in market history. Identifying the right sequence will be all important, with the UK, most EM, and the US set to lead the pack, while the euro area, Japan, China, and most frontier markets likely to be lagging.

    • Societe Generale

      We believe the clear prospect of an imminent Fed pivot offers the opportunity to increase cheap-quality credit and strongly re-gear our strategy towards cheap EM assets, from unhedged local currency bonds to (mostly) non-China Asian equities.

    • Societe Generale

      We remain confident that 10-year US treasury yields have peaked or are close to peaking in a 4% to 4.5% range, with a capital gains potential by end-2023, as the Fed continues to provide more color on the nature of its pivot. They have already announced a lower magnitude of rate hikes, after which we can expect a no-hike stance, before markets should then start to price in expectations of rate cuts. We prefer EM bonds to US Treasuries, in a clear switch.

    • Societe Generale

      The Fed pivot will likely happen before the ECB pivot. Positive for the euro and beginning of the end for the dollar rally.

    • Societe Generale

      Fair value for the S&P 500 currently reads at 3,650 based on our inflation moderation valuation framework. But we expect negative EPS growth in the first quarter, a Fed pivot in the second, China re-opening in the third and rising US recession risk in the fourth. This should see the S&P 500 trading in a wide range of 3,500 to 4,000, around that 3,650 fair value. Ultimately, we expect the S&P 500 to end 2023 at 3,800.

    • State Street

      The Fed can’t hike rates forever. Eventually earnings cynicism will find a bottom and optimism will be repriced. In the meantime, positioning portfolios for the fundamental weakness washing over the world, while acknowledging the potential for future positivity, takes combining offense with defense.

    • State Street

      A policy pivot could potentially renew sentiment toward more cyclical segments of the market and usher in hope for earnings positivity off a very cynical base. But the timing is uncertain. While a pivot is getting closer, as the Fed enters the later stages of its hiking cycle and earnings continue to be revised lower, the change in trend is unlikely to occur right away.

    • State Street

      While risk is still likely to be elevated in the near term, if a policy pivot turns market pessimism to optimism and risk aversion declines, our view is that segments with decent fundamentals and attractive valuations may enter a repair phase more quickly than expensive areas. Domestically oriented US small caps represent one of these possibilities.

    • T. Rowe Price

      A slowdown in the pace of Fed rate hikes should narrow rate differentials, softening dollar strength. Given the level of overvaluation, economic surprises — such as a sooner‑than‑expected Fed pivot — easily could push the US currency lower in 2023.

    • UBS

      For the US, we now expect near zero growth in both 2023 and 2024 (roughly 1 percentage point below consensus), and a recession to start in 2023. Combined with inflation falling rapidly (50 basis points below consensus), the Fed would cut the Federal Funds rate down to 1.25% by early 2024. The speed of that pivot will drive every asset class next year.

    • UBS

      The economic weakness we forecast is widespread but it is not deep. It would be enough, however, to push unemployment 100 basis points higher in DM, and 200 basis points in the US (to 5.5%). Combined with inflation coming down rapidly in the coming quarters, that creates a much stronger central bank pivot than is priced by the market: about 200 basis points in DM cuts by mid-2024 (and nearly 400 basis points in the US).

    • UBS Asset Management

      We are neutral on government bonds. The Fed is likely to be slow in ending or reversing its hiking cycle as long as the US labor market bends but does not break, while signs that overall inflation has peaked may reduce the odds of overtightening. However, price pressures are likely to remain stubbornly high – a side effect of a US labor market that refuses to crack.

    • UniCredit

      Inflation is set to decelerate meaningfully in 2023. The Fed and the ECB are likely to finish their tightening cycle by early next year and to start cutting rates in 2024.

    • Vanguard

      We don’t believe that central banks will achieve their targets of 2% inflation in 2023, but they will maintain those targets and look to achieve them through 2024 and into 2025 — or reassess them when the time is right.

    • Wells Fargo

      Massive private debt overhang in many G10 economies could cause earlier/faster rate cuts. Risks appear to be largest in Sweden and Canada, both of which have seen a huge jump in corporate and household debt/GDP over the past decade

    • Wells Fargo

      The ECB and BOE have already shown more concern for slowing growth vs. high inflation, and seem more inclined to pivot away from inflation fighting in a stagflation scenario. In contrast, the Fed’s bar for pivoting seems higher. Private debt has been more contained in the US relative to its peers, but debt has still risen sharply over the last few decades.

    • Wells Fargo Investment Institute

      Dollar strength early in the year should flatten and partially reverse its upward trajectory, as slowing inflation and Federal Reserve interest-rate cuts in the second half of 2023 remove a key source of support.

    • Wells Fargo Investment Institute

      We expect US Treasury yields to decline in 2023 as we go through an economic recession and in anticipation of policy rate cuts from the Fed.

  13. DOLLAR
    • AXA Investment Managers

      A Fed pivot is certainly getting closer and will mark an inflection in US dollar trajectory, though not a collapse. The yen should be the main beneficiary. The euro and sterling are facing new structural challenges that may not disappear any time soon.

    • Bank of America

      With inflation, the dollar and Fed hawkishness peaking in the first half of 2023, markets are expected to tolerate more risk later in the year. The S&P 500 typically reaches its bottom six months ahead of the end of a recession, and as a result, bonds appear more attractive in the first half of 2023, while the backdrop for stocks should be better in the later half. We expect the S&P to end the year at 4,000 and S&P earnings per share to total $200 for the year.

    • Bank of America

      After a historically bad year for industrial metals in 2022, cyclical and secular drivers are expected to boost metals in 2023, and copper rallies approximately 20%. Recessions in key markets are a headwind but China’s reopening, a peaking dollar and especially an acceleration of renewables investment should more than offset these negative factors for copper.

    • BCA Research

      As a countercyclical currency, the US dollar will weaken in 2023. While the greenback may find some temporary support in 2024, this will be a reprieve in an extended dollar bear market.

    • BNP Paribas

      The dollar continues to face negative structural factors and the US yield advantage is probably peaking. However, we expect risk-off market moves to provide safe-haven support to the dollar over the next three to six months. When risky assets base, we expect the dollar to peak and to end 2023 at weaker levels than present. In general, duration-sensitive currencies are likely to outperform equity-sensitive ones. Like the market more broadly, FX vol will be driven more by data than rates, in our view. We expect high vol-of-vol.

    • BNY Mellon Investment Management

      Higher for longer rates – with divergence favoring the dollar – tightens global financial conditions and sets off a global recession, denting corporate earnings and risk assets through the first half of 2023.

    • Brandywine Global Investment Management

      Outside of the US, the global economy is already in recession due to the effects of the strong dollar and a very weak China. China has started to back away, slowly, from the policies that have been depressing activity. If the dollar corrects lower as the US economy decelerates and inflation retreats, and the US avoids a bust, the world economy could be stabilizing by this time next year.

    • Brandywine Global Investment Management

      The powerful rally in the dollar in 2022 was driven by an alignment of factors that will not persist in 2023. The greenback is expensive, and relative growth prospects point to a weaker dollar next year. Relative monetary policy will also tighten more outside the US, notably in Europe. A weaker greenback will allow for some stability in EM currencies, which we think are broadly undervalued.

    • Citi

      We see dollar performance split next year. For the first several months, we’d expect a resumption of risk asset underperformance, likely via the earnings channel for equities. This likely keeps the dollar supported as it has a strong inverse correlation between with equities. Moving into the second half of 2023, the dollar could enter into a depreciation regime.

    • Citi Global Wealth Investments

      The dollar could continue rallying for longer than fundamentals justify. Overshoots have been a characteristic of prior periods of dollar strength. Around a durable dollar peak, we will look to add more non-US equities and bonds.

    • Comerica Wealth Management

      Given our base case, the mild-recession scenario, as well as the possibility for a hard landing scenario, it is important for investors to remain cautious and not get too aggressive during bear market rallies. We anticipate heightened market volatility in the months and quarters ahead until the market gets comfortable with the potential for peaks in market interest rates, the dollar, and monetary policy along with troughs in GDP, P/Es, and EPS.

    • Comerica Wealth Management

      In 2023, we look for a resumption of US dollar strength and a renewed bid for oil as geopolitical tensions remain elevated. Commodities including copper and gold are unlikely to gain traction until the Fed’s tightening campaign abates.

    • Commonwealth Financial Network

      Going forward, it’s reasonable to believe the US dollar will remain strong. But an equally compelling argument could be made that its current strength will not be sustained throughout 2023. If the Fed cools down inflation and curbs interest rate increases, investors could see the dollar stabilize—or possibly weaken—against other currencies. Several wild cards need to be considered, including the ongoing war in Ukraine, elevated oil prices, and above-average inflationary readings for a prolonged period. Still, our current expectation is that the greenback will not cause as many headwinds for international equity allocations as it did in 2022.

    • Credit Suisse

      The dollar looks set to remain supported going into 2023 thanks to a hawkish US Federal Reserve and increased fears of a global recession. It should stabilize eventually and later weaken once US monetary policy becomes less aggressive and growth risks abroad stabilize. We expect emerging market currencies to remain weak in general.

    • Deutsche Bank

      We expect the dollar to move sideways against the euro and then to weaken significantly as the recession hits and risk premia favoring the dollar begin to diminish.

    • Fidelity

      If the Fed continues to raise rates, an even stronger dollar could accelerate the onset of recession elsewhere. Conversely, a marked change in the dollar’s direction, potentially as its relative strength and confidence in monetary and fiscal policy making become an issue, could bring broad relief, and increase overall liquidity across challenged economies.

    • Generali Investments

      Selected EM markets offer value after years of underperformance, with dollar fatigue and China’s (mild) rebound both helping – we see EM as a target for positioning early for the post-recession environment.

    • Generali Investments

      The fundamentally overvalued dollar is past peak. The Fed’s final hike looming for early spring 2023 is set to reduce rates uncertainty (a previous dollar boost) and path the way to narrowing yield gaps vs major peers. Initially, the transition is likely to prove volatile, though. The euro is still to feel the pain from recession and the energy crunch, leaving the currency shaky near term. But fading recession forces by early spring may mark the start of ensuing capital inflows to the euro area and a more sustained euro recovery.

    • HSBC Asset Management

      Attractive valuations, a peaking US dollar and China policy support creates opportunity for EMs in 2023. Importantly, dispersion between individual markets in Asia has widened materially, and stock level dispersion is even greater – reaching a point not seen since the global financial crisis of 2008. This offers diversification benefits along with opportunity for alpha.

    • Invesco

      The strong-dollar cycle will likely cease as the US Federal Reserve signals a pause in its tightening cycle. Given how expensive the dollar has become, we would expect it to weaken once the Fed pivots.

    • JPMorgan

      In currency markets, further dollar strength is still expected in 2023, but of a lower magnitude and different composition than in 2022. The Fed pause should give the dollar’s rise a breather. Unlike in 2022, lower-yielding currencies like the euro are expected to be more insulated as central banks pause hikes and the focus shifts to addressing slowing growth — but this in turn makes high-beta, emerging market currencies more vulnerable. Weak growth outside the US should also remain a pillar of dollar strength in 2023.

    • Morgan Stanley

      U.S. dollar will peak in 2022 and declines through 2023.

    • Morgan Stanley

      Valuations are clearly cheap, and cyclical winds are shifting in favor of emerging markets as global inflation eases more quickly than expected, the Fed stops hiking rates and the dollar declines. The MSCI EM, an index of mid and large-cap companies in 24 emerging markets, could see 12% price returns in 2023. EM debt could benefit from a combination of trends. Fixed-income strategists forecast a 14.1% total return for emerging market credit, driven by a 5% excess return and a 9.1% contribution from falling Treasury yield.

    • NatWest

      Relative growth and relative policy were clear dollar supports in 2022, but each are set to turn in 2023 and we expect the dollar falls back to the pack, with increasing confidence by second quarter. CAD may weaken as a high beta USD. A more mature dollar rally opens long EM opportunities.

    • NatWest

      If or when the dollar cycle turns is the key FX question heading into 2023. While uncertainties remain and the growth outlook is fraught with risks, a passing of the peak in global economic pessimism could lead to some recovery in European currencies in 2023. China’s slow and uneven reopening from Covid-19 lockdowns reduces appetite to position for a weaker dollar in antipodean currencies, particularly early in 2023, though a more decisive change in policies may alter that backdrop heading out of winter.

    • Ned Davis Research

      We are bearish on the dollar due to worsening momentum and model readings. The dollar downtrend can be expected to continue as long as nominal and real US bond yields continue to fall relative to non-US yields.

    • Ned Davis Research

      With interest rate volatility subsiding, MBS and long-term corporate spreads should narrow, leading to outperformance. EM bonds should also be supported. And EM equities are likely to recover as EM currencies strengthen and the dollar weakens, consistent with a continuing recovery in gold.

    • Nuveen

      We’re particularly favorable toward investment grade corporates and see opportunities in the higher quality segments of the high yield market. In contrast, we remain cautious toward emerging markets debt given the likely continued strength of the US dollar and slower global growth.

    • Pictet Asset Management

      Dollar weakness. Slower growth. A big drop in inflation. Muted equities. Bullish bonds. And a China rebound. All of this spells out the need for investors to remain cautious on risk assets – particularly through the first half of the year.

    • Pictet Asset Management

      The dollar is likely to edge back from its multi-decade highs. This should help support emerging markets equities, as should a widening growth differential between emerging and developing economies.

    • Principal Asset Management

      The US dollar’s bull run has likely been exhausted and, once it has convincingly changed direction, should brighten the relative outlook for both emerging markets and European global risk assets. The relatively attractive valuations outside the US suggest investors stand to gain convincingly through global diversification.

    • Robeco

      In our base case, 2023 will be a recession year that – once the three peaks in inflation, rates and the dollar have been reached – will ultimately contribute to a considerable brightening of the return outlook for major asset classes. But we first need to brace for more pain in the short term.

    • Robeco

      While the dollar bull market could prove to be more persistent as the Fed shows reluctance to pivot and as potential liquidity events trigger safe-haven flows towards the US, the dollar bull run will likely peak in 2023. This will be on the back of declining rate differentials between the US and the rest of the world, and a peak in US growth versus the rest of the world.

    • Robeco

      Emerging-market equities typically outperform once a dollar bear market enters the scene. Emerging markets are attractively valued versus their developed counterparts. In addition, the downturn in the earnings cycle in emerging markets is already more mature than developed market equities.

    • Schroders

      Schroders expects a reversal in the performance of global currencies in 2023, where the US dollar may weaken. On the other hand, the Japanese yen may regain its strength, providing a hedge against the impact of a semiconductor downcycle on other Asian economies and currencies.

    • Societe Generale

      From a currency standpoint, we continue to gradually reduce our dollar weighting (down another five points to 48%) but take new positions on EM currencies (plus four points to 19%), including in Emerging Europe. We prefer the euro to the yen and have no exposure to sterling.

    • Societe Generale

      The Fed pivot will likely happen before the ECB pivot. Positive for the euro and beginning of the end for the dollar rally.

    • State Street

      The softening of the dollar would be net positive for emerging-market local debt, as in the months when EM currencies rallied, EM local debt’s return was positive 86% of the time with an average monthly gain of 2.27%. as a result of the demoralizing returns, a potential dollar bear allocation offers a generationally attractive yield that just may be worth the risk.

    • T. Rowe Price

      A slowdown in the pace of Fed rate hikes should narrow rate differentials, softening dollar strength. Given the level of overvaluation, economic surprises — such as a sooner‑than‑expected Fed pivot — easily could push the US currency lower in 2023.

    • TD Securities

      Dollar outlook hinges on the intersection of global growth, terminal rate pricing, and terms of trade. While peak dollar is here, global growth isn’t strong enough to warrant a reversal yet. Expect consolidation in the first quarter and a deeper correction afterwards.

    • Truist Wealth

      Within equities, we retain a US bias. Overseas markets remain cheap on a relative basis, but valuation is a condition not a catalyst. Given the weak global economic backdrop we expect next year, the US economy should remain a relative outperformer, and while the upward momentum in the US dollar is likely to slow, it should remain relatively strong.

    • UBS

      As US carry advantage and rates volatility fade more rapidly than in a typical recession, we expect the dollar to slowly fall against G-10 currencies. Its fall should be limited, however, by weak global growth, a key driver for the dollar. We prefer AUD and NZD over CAD, and NOK over SEK. We see Asia in particular under pressure in the first half amid a weak trade backdrop, low carry and a need to rebuild depleted FX reserves.

    • UBS Asset Management

      In currencies, we believe we have moved from a strong, trending US dollar to more of a rangebound trade in USD. Our catalysts for a broad turn in the dollar are for the Fed to stop hiking interest rates, China’s zero-Covid-19 policy to end, and energy pressures in Europe stemming from Russia’s invasion of Ukraine to subside. None of these have fully happened yet, but all three appear to be getting closer. A more rangebound dollar coupled with a global economy that is still growing, but slowing, could provide a very positive backdrop for high carry, commodity-linked currencies. We prefer the Brazilian real and Mexican peso.

    • UniCredit

      The dollar is set to further loosen its grip, but its strength is unlikely to be fully reversed. By the end of our forecast horizon, we expect EUR-USD to climb to 1.10-1.12 and we see GBP-USD back above 1.20, USD-JPY below 135 and USD-CNY down to 6.90. We remain bearish on the CEE3 currencies, the TRY and the RUB.

    • Wells Fargo

      The dollar will stay stubbornly strong through the first half of 2023. The market is too sanguine the European/UK energy situation – deeper-than-expected recessions in euro zone/UK vs. resilient US growth keeps upward pressure on the broad dollar. By mid-year we call for EURUSD to return to parity and GBPUSD to reach 1.11.

    • Wells Fargo

      Relative interest rate outlook still supports dollar upside. We think the Fed will hike rates more than current market pricing and keep rates higher for longer than market pricing indicates. In contrast, we think market pricing is generally still too high for the ECB, BOE and several other central banks. Debt overhangs will likely force many central banks to keep real rates uncomfortably low.

    • Wells Fargo

      Relative growth outlook supports dollar gains. Growth expectations for 2022/23 have mostly moved against the dollar this year. Wells Fargo Economics is much further below consensus on growth in the UK and euro zone than the US. China reopening is a key risk to our view.

    • Wells Fargo Investment Institute

      Dollar strength early in the year should flatten and partially reverse its upward trajectory, as slowing inflation and Federal Reserve interest-rate cuts in the second half of 2023 remove a key source of support.

    • Wells Fargo Investment Institute

      International equity markets face headwinds that ultimately keep us less favorable compared with US equities through 2023. In aggregate, international earnings growth prospects lag those for the US, while sentiment, geopolitical tensions, and only a partial dollar depreciation reinforce our preference for US over international markets.

  14. EARNINGS
    • Amundi Asset Management

      Given decelerating global growth and a profit recession in the first half of 2023, investors should remain defensive for now with gold and investment-grade credit the favored asset classes. However, they should be ready to adjust through the year to exploit market opportunities that will emerge, as valuations get more attractive. Headwinds should subside in the second half of 2023.

    • AXA Investment Managers

      Even after the significant de-rating already seen, stock markets are still vulnerable to the expected earnings recession.

    • Bank of America

      Going into 2023, one expected shock remains: recession. The US, euro area and UK are all expected to see recessions next year, and the rest of the world should continue to weaken, with China a notable exception. The recession shock likely means corporate earnings and economic growth will come under pressure in the first half of the year, while at the same time, China’s reopening offers a reprieve for certain assets.

    • Bank of America

      With inflation, the dollar and Fed hawkishness peaking in the first half of 2023, markets are expected to tolerate more risk later in the year. The S&P 500 typically reaches its bottom six months ahead of the end of a recession, and as a result, bonds appear more attractive in the first half of 2023, while the backdrop for stocks should be better in the later half. We expect the S&P to end the year at 4,000 and S&P earnings per share to total $200 for the year.

    • BNP Paribas

      We expect new lows for equities in 2023. The 2022 correction has been mostly valuation-driven, and we expect 2023 to be all about earnings, supporting higher realized volatility.

    • BNY Mellon Investment Management

      Higher for longer rates – with divergence favoring the dollar – tightens global financial conditions and sets off a global recession, denting corporate earnings and risk assets through the first half of 2023.

    • Carmignac

      In equity markets, while the drop in valuations appear broadly consistent with a recessionary backdrop, there are wide disparities between regions – even more so on earnings. The eyes of global investors are focused on Western inflation and growth dynamics. Looking towards the East should prove salutary and offer most welcomed diversification.

    • Citi

      We see dollar performance split next year. For the first several months, we’d expect a resumption of risk asset underperformance, likely via the earnings channel for equities. This likely keeps the dollar supported as it has a strong inverse correlation between with equities. Moving into the second half of 2023, the dollar could enter into a depreciation regime.

    • Citi Global Wealth Investments

      We need to get through a recession in the US that has not started yet. We believe that the Fed’s current and expected tightening will reduce nominal spending growth by more than half, raise US unemployment above 5% and cause a 10% decline in corporate earnings. The Fed will likely reduce the demand for labor sufficiently to slow services inflation just as high inventories are already curtailing goods inflation.

    • Columbia Threadneedle

      We will see greater dispersion in terms of valuation in 2023, with longer duration equity – companies with growth expectations farther out in the future – suffering more. Investors will have to be more careful about what they are willing to pay for future earnings, and demands for profitability will come sooner. All of this will mean that companies that aren’t able to deliver earnings are more likely to see the market take down their valuation.

    • Comerica Wealth Management

      We expect a retest of the October lows (around 3,500) in the S&P 500 Index, before investors price in a policy response and begin discounting recovery in late 2023 and early 2024. This scenario should experience flat profits in 2023 and expectations of 5% earnings gains in 2024, and we would view the S&P 500 as fairly valued within the range of 4,100-4,200 within the next 12 months.

    • Comerica Wealth Management

      Should global conditions worsen and a deeper recession, or hard landing ensues it’s conceivable that S&P 500 profits decline to the $200 range in 2023. In this scenario, we do not expect technical support to hold at 3,500 for the S&P 500. Instead, we view a more typical recession-like P/E multiple of 15x to result, therefore taking the Index down to the 3,000 range.

    • Comerica Wealth Management

      Given our base case, the mild-recession scenario, as well as the possibility for a hard landing scenario, it is important for investors to remain cautious and not get too aggressive during bear market rallies. We anticipate heightened market volatility in the months and quarters ahead until the market gets comfortable with the potential for peaks in market interest rates, the dollar, and monetary policy along with troughs in GDP, P/Es, and EPS.

    • Commonwealth Financial Network

      Industry analysts currently expect S&P 500 earnings growth to be in the high single digits by the end of the year, with 2023 growth in the 5% range. We believe these expectations are reasonable, especially if the labor market and consumer spending remain healthy and inflation weakens.

    • Credit Suisse

      We see 2023 as a tale of two halves. Markets are likely to first focus on the “higher rates for longer” theme, which should lead to a muted equity performance. We expect sectors and regions with stable earnings, low leverage and pricing power to fare better in this environment. Once we get closer to a pivot by central banks away from tight monetary policy, we would rotate toward interest-rate-sensitive sectors with a growth tilt.

    • Fidelity

      The time will come to allocate back into equities too. But for now, the deteriorating environment is not reflected in earnings forecasts or valuations, implying there could be further downside to come. We expect volatility to remain high, and sentiment is low enough that sharp risk-on bounces will be likely, if short-lived.

    • Franklin Templeton

      The impact of inflation on listed infrastructure in 2023 should be muted, particularly for regulated assets, which often have inflation adjustment clauses. Infrastructure earnings look better protected in general than global equity earnings, in our view.

    • Generali Investments

      Equity multiples dropped in 2022 but appear too high still relative to real bond yields. Earnings consensus for 2023 (single digit positive) also appears too optimistic. Our sector/style preference is mixed, but cyclicals look rich at the turn of the year, while the 2022 outperformance of value will run out of steam along with bond yields. Over 12 months, thanks to bottoming earnings, the end of central bank tightening, and a continuing fall in bond volatility, we expect positive total returns of 3% to 6%.

    • Hirtle Callaghan

      In the case of a soft landing, the picture is brighter for equities if investors can look through this next year’s earnings. Valuations have come down significantly, pricing in much of the bad news for this coming year. We are positive on the outlook for corporate growth looking a couple of years out if the Fed can achieve the soft landing it is hoping for.

    • HSBC Asset Management

      Inflation should still be persistently high for much of 2023, and on the back of rapid tightening by the Federal Reserve we are forecasting a recession for the US in 2023 – a corporate profits recession in the first half of the year, followed by a GDP recession.

    • HSBC Asset Management

      For equities, we think price to earnings ratios in developed markets have scope to fall given where bond yields are. But the big risk remains corporate earnings downgrades, which will probably be a driver of weak equity market performance.

    • Invesco

      A global recession remains a significant possibility, with the potential for higher unemployment, defaults, and a deterioration of earnings. However, we believe that risk is still below 50%, based on our expectation that central banks pause tightening soon.

    • JPMorgan

      JPMorgan Research is reducing its below consensus 2023 S&P 500 earnings per share (EPS) of $225 to $205 due to weaker demand and pricing power, further margin compression and lower buyback activity.

    • JPMorgan

      The convergence between the US and international markets should continue next year, both on a dollar and local currency basis. The S&P 500 risk-reward relative to other regions remains unattractive. Continental European equities have a likely recession to negotiate and geopolitical tail risks, but the euro zone has never been this attractively priced versus the US. Japan should be relatively resilient due to solid corporate earnings from the economy’s reopening, attractive valuation and smaller inflation risk compared with other markets.

    • JPMorgan Asset Management

      The broad-based sell-off in equity markets has left some stocks with strong earnings potential trading at very low valuations; we think there are opportunities in climate-related stocks and the emerging markets.

    • JPMorgan Asset Management

      While falling earnings forecasts could lead stocks lower, if the magnitude of the decline in earnings is moderate – as we expect – then it would likely only lead to limited further downside for reasonably valued stocks, relative to the declines already seen in 2022.

    • JPMorgan Asset Management

      Even though we expect a challenging macroeconomic environment in 2023 and downward corporate earnings revisions, we think income stocks could have a good year with dividends proving more resilient than earnings. For investors that are tentatively looking to increase their equity exposure, an income tilt could prove relatively resilient in the worst case scenario, while also providing the potential for outperformance in our more optimistic scenario for markets given attractive valuations.

    • Macquarie Asset Management

      Macquarie Asset Management remains cautious toward equities due to earnings risks and anticipates a decline in equity markets as the developed world endures recessionary conditions. The asset manager sees opportunities in playing key thematics, such as deglobalisation and onshoring, with construction and engineering firms, railroads, and consumer discretionary firms becoming the major beneficiaries.

    • Morgan Stanley

      Equities next year, however, are headed for continued volatility, and we forecast the S&P 500 ending next year roughly where it started, at around 3,900. Consensus earnings estimates are simply too high, to the point where we think companies will hoard labor and see operating margins compress in a very slow-growth economy.

    • NatWest

      While earnings will face increased headwinds in the first half, we nevertheless see scope for IG corporates to post a strong annual total return, helped by an (eventual) rates pivot by central banks, and a healthy excess return by the second half. Such an outlook demands investors increase their weighting into cyclicals as 2023 evolves.

    • Ned Davis Research

      We are neutral on US stocks on an absolute basis and relative to bonds and cash. Macro and earnings concerns are offset by extreme pessimism and technical improvements. We favor small-caps over large-caps and Value over Growth. We are overweight Europe equities excluding the UK and marketweight on all other international regions.

    • Neuberger Berman

      We think the next 12 months are likely to see this cycle’s peaks in global inflation, central bank policy tightening, core government bond yields and market volatility, as well as troughs in GDP growth, corporate earnings growth and global equity market valuations. But we do not believe this will mark a reversion to the post-2008 “new normal”. We see structural forces behind persistently higher inflation — and therefore a persistently higher neutral interest rate, a higher cost of capital and lower asset valuations.

    • Neuberger Berman

      Consensus earnings growth estimates for 2023 did not fall in the same way as real GDP growth estimates, perhaps because high inflation has supported nominal GDP growth. As inflation turns downward but remains relatively high as the economy slows, we think earnings estimates are likely to be revised down. We also think dispersion will increase, favoring companies that are less exposed to labor and commodity costs and have more pricing power to maintain margins, and use less aggressive earnings accounting. We believe this will translate into greater dispersion of stock performance.

    • Northern Trust

      In equities, risks surrounding fundamentals are tilted to the downside given the extent of cumulative central bank tightening. Pockets of economic durability should limit a US earnings slowdown, while monetary policy offers a bit more support elsewhere. Keeping us equal-weight is the potential for sentiment upside. From beaten down levels, sentiment has runway to improve — particularly in Europe where the valuation discount is steep.

    • Nuveen

      We should continue to see pockets of strength across global equity markets on specific catalysts such as perceived dovish messaging from central banks or even a moderation of rate hikes, but the risks surrounding earnings, employment and contractionary manufacturing data lead us to believe we’re not yet out of the equity bear market.

    • Pimco

      The economy in developed markets is under growing pressure as monetary policy works with a lag, and we expect this will translate into pressure on corporate profits. We therefore maintain an underweight in equity positioning, disfavor cyclical sectors, and prefer quality across our asset allocation portfolios.

    • Pimco

      We believe corporate earnings estimates globally remain too high and will have to be revised downward as companies increasingly acknowledge deteriorating fundamentals. Only when rates stabilize and earnings gain ground would we consider positioning for an early cycle environment across asset classes, which would likely include increasing allocations to risk assets. High yield credit and equities generally only rally late in a recession and early in an expansion.

    • Robeco

      Comparing high yield valuations with those of equities, high yield looks more attractive at this stage. We expect an earnings recession to gain traction as we enter 2023: earnings per share could drop 20-30%. This is not yet fully recognized by the equity market.

    • Robeco

      Emerging-market equities typically outperform once a dollar bear market enters the scene. Emerging markets are attractively valued versus their developed counterparts. In addition, the downturn in the earnings cycle in emerging markets is already more mature than developed market equities.

    • Schroders

      Schroders expects 2023 to usher in a turning point for global equities after the sharp corrections seen year-to-date this year. Valuations are now at more attractive levels where investors may look to quality companies across markets for opportunities when the time is ripe, subject to recessionary risks and currently over-optimistic expectations on corporate earnings.

    • Schroders

      We tend to focus on resilient companies that are of high profit margins and low leverage ratios. Usually, these are quality stocks that can generate profits even in tough, recession-prone environments.

    • Societe Generale

      The impact of tighter monetary policy is likely to be reflected in lackluster earnings. Inflation has likely peaked already, and the trajectory of monetary policy is unlikely to be more hawkish than what the market is currently pricing in, in our view.

    • Societe Generale

      Asia is at the end of the earnings downgrade cycle, making cheap Asian assets look attractive.

    • Societe Generale

      Fair value for the S&P 500 currently reads at 3,650 based on our inflation moderation valuation framework. But we expect negative EPS growth in the first quarter, a Fed pivot in the second, China re-opening in the third and rising US recession risk in the fourth. This should see the S&P 500 trading in a wide range of 3,500 to 4,000, around that 3,650 fair value. Ultimately, we expect the S&P 500 to end 2023 at 3,800.

    • State Street

      The Fed can’t hike rates forever. Eventually earnings cynicism will find a bottom and optimism will be repriced. In the meantime, positioning portfolios for the fundamental weakness washing over the world, while acknowledging the potential for future positivity, takes combining offense with defense.

    • State Street

      With leading economic indicators falling deeper into negative territory — flashing warning signs of a recession — additional earnings downgrades are highly likely.

    • State Street

      A policy pivot could potentially renew sentiment toward more cyclical segments of the market and usher in hope for earnings positivity off a very cynical base. But the timing is uncertain. While a pivot is getting closer, as the Fed enters the later stages of its hiking cycle and earnings continue to be revised lower, the change in trend is unlikely to occur right away.

    • State Street

      The one- to three-year investment-grade space, a segment carrying an index-weighted average rating of A3/BAA1, represents a high-quality value opportunity to pick up a yield that is on par with the US equity market earnings yield (5.1%) and above that of the broader US aggregate bond market (4.7%), without taking on any more duration or credit risk than one would have assumed over the past 20 years in this portion of the credit market.

    • State Street

      Non-US equities now trade at 12.17 times next year’s earnings, 20% below their historical median average of 14.94. The same is true under a shorter horizon, as US stocks trade on par and at 7% above their five- and 15-year median levels. Meanwhile, non-US stocks trade 11% and 12% below their five- and-15-year median levels, respectively.

    • T. Rowe Price

      In 2023, earnings growth could move to the top of the list of investor concerns.

    • TD Securities

      Forward corporate earnings have not started correcting for the recession. We expect wider credit spreads, decompression between high-yield vs investment grade, and focus on higher-quality, lower-maturity exposures.

    • Truist Wealth

      The equity market’s reset is a positive for longer-term returns. However, the near-term risk/reward remains unfavorable given elevated recession risk, uncompelling valuations, and downside earnings risk.Our shorter-term, tactical outlook leads us to remain defensive heading into 2023.

    • Truist Wealth

      Historically, earnings around recessions have averaged a drop of almost 20%. We don’t necessarily believe that earnings have to fall that far given how well corporations have navigated the pandemic and the fact that elevated inflation raises nominal sales figures, but there remains downside risk.

    • UBS

      Stocks are pricing in only 41% and 80% probabilities of a recession in the US and Europe, respectively. Weak growth and earnings drag the market lower before a fall in rates helps it bottom at 3,200 in the second quarter and lifts it to 3,900 by the end of 2023. With revenues and margins under greater pressure, Eurostoxx is likely to do worse, bottoming in the second quarter at 330 & ending 2023 at 385. As a part of our top trades we lay out stock lists of disinflation beneficiaries. Quality and Growth are likely to perform better than Value.

    • UBS Asset Management

      The US economy (and earnings) probably don’t fall off as sharply as many are projecting, and, however, also the Fed will need to keep rates higher for longer.

    • UniCredit

      Following a volatile sideways movement early in the year, equities have potential to rise by about 10% in 2023, primarily supported by valuation expansion. Earnings growth should be flat and is unlikely to accelerate before 2024. Our 2023 year-end index targets are Euro Stoxx 50 at 4,200, the DAX at 15,500 and the S&P 500 at 4,300.

    • Vanguard

      In credit, valuations are fair, but the growing likelihood of recession and declining profit margins skew the risks toward higher spreads. Although credit exposure can add volatility, its higher expected return than US Treasuries and low correlation with equities validate its inclusion in portfolios.

    • Wells Fargo Investment Institute

      We expect a U.S. recession in the first half of 2023, as well as a continued global economic slowdown, as last year’s hawkish monetary policy and money growth slowdown works with a lag. That should drive down corporate earnings growth and create important inflection points for investors over the next nine to 12 months.

    • Wells Fargo Investment Institute

      We expect earnings to contract in 2023 as the recession leads to declining revenues and profit margins. Valuations should rebound in 2023 to lift equity markets by year-end as early cycle dynamics begin to take hold.

    • Wells Fargo Investment Institute

      International equity markets face headwinds that ultimately keep us less favorable compared with US equities through 2023. In aggregate, international earnings growth prospects lag those for the US, while sentiment, geopolitical tensions, and only a partial dollar depreciation reinforce our preference for US over international markets.

  15. DEFAULTS
    • AXA Investment Managers

      Defaults will rise a little but we have little concern about a large wave of refinancing-related defaults. Given the close relationship between the excess returns of high-yield bonds (relative to government bonds) and equity returns, we see high yield as a relatively lower risk option on an eventual recovery in equity returns.

    • Bank of America

      The end of Fed hikes and more conservative corporate balance sheet management lead to a positive backdrop for credit: Weaker prospects for growth and higher rates lead managements to shift prioritization to debt reduction from share buybacks and capex. Total returns of approximately 9% are expected in investment grade credit in 2023 in addition to a default rate peak of 5%, far below past recessions.

    • Carmignac

      Corporate credit offers interesting opportunities, because on the risk side, the expected rise in default rates is already largely incorporated in current prices. And on the reward side, embedded yields are at levels consistent with the long-term outlook for equities.

    • DWS

      On the credit side, there are currently no excessively high risks in sight. Senior bank bonds and hybrid corporate bonds with yields of 6% to 7% are particularly promising. Also interesting are the riskier euro high-yield bonds, which currently have yields of 7.3%. At 0.7%, default rates are at a historically very low level. They are likely to rise, but much less than in previous phases of an economic downturn.

    • Fidelity

      Were the US to head into recession next year, credit defaults would rise significantly. So far, the market is yet to reflect these risks, notably in high yield credit. Prudent credit selection within high yield is therefore essential.

    • Franklin Templeton

      Investment-grade corporates look like an attractive place to us for investors seeking relatively safe income. High-yield credit looks attractive for investors with a multi-year time horizon, in our view, as current yields and active selection provide a cushion for potentially near-term higher defaults in the sector.

    • Generali Investments

      We stay defensive on high yield, as defaults are starting to pick up and spreads seem to be mispricing the developing recession pressures.

    • Invesco

      A global recession remains a significant possibility, with the potential for higher unemployment, defaults, and a deterioration of earnings. However, we believe that risk is still below 50%, based on our expectation that central banks pause tightening soon.

    • Morgan Stanley

      Investors should keep a close eye on quality. US high-yield corporate bonds may look enticing, but they may not be worth the risk during a potentially extended default cycle.

    • Neuberger Berman

      We do not anticipate a major uptick in defaults: the economy has historically been able to generate healthy growth with rates at these levels, balance sheets are generally strong and maturities are generally several years away, supporting a range of fixed income credit markets. That said, in our view, the sooner investors work higher-rates-for-longer into their credit analyses, the sooner they are likely to make what we regard as the necessary portfolio adjustments.

    • Northern Trust

      High yield remains our biggest tactical overweight. We expect default rates to rise off of record lows but remain below the long-term average given strong credit fundamentals that support issuers’ ability to pay and a benign maturity schedule. Combined with an improved high yield market quality and income yield of around 8%, we find high yield attractive.

    • Nuveen

      We’re growing a bit more wary toward credit risk as recession indicators rise, which could cause some spread widening. We think corporate credit fundamentals remain solid and we’re not expecting a significant rise in defaults since most companies have been focusing on improving their balance sheets.

    • Pimco

      Once a recession is underway and the initial deleveraging is mostly done, we expect high quality investment grade credit spreads would also begin to tighten. This year, the initial condition of corporate balance sheets is generally healthy, and we view a default wave as unlikely, especially considering the Fed’s continuing focus on financial stability and functioning credit markets.

    • State Street

      Weak sentiment is likely to extend to defaults. Trailing 12-month defaults on a par-weighted basis are projected to increase from 1.3% to 6% over the next 12 months — well above their historical 3.3% median.

    • Wells Fargo Investment Institute

      Currently, we expect high-yield defaults to climb slightly in 2023 but only moving closer toward long-term averages. We prefer higher-quality issuers with stronger balance sheets and cash flows and with relatively better liquidity.

  16. VOLATILITY
    • AXA Investment Managers

      Investors should be less confident about capital growth strategies as we enter 2023. Bond returns should improve relative to volatility and parts of the equity market are becoming cheap. As 2023 unfolds, there should be more clarity on the macro outlook. This should support positive, albeit prudent, portfolio return expectations.

    • Bank of America

      US rates stay elevated but expect a decline by year end 2023. The yield curve is expected to dis-invert and rates volatility should fall. Both two-year and 10-year US Treasuries should end 2023 at 3.25%. Sectors hurt by rising rates in 2022 may benefit in 2023.

    • Bank of America

      After a volatile start to 2023, emerging markets should produce strong returns. Once inflation and rates peak in the US and China reopens, the outlook for emerging markets should turn more favorable. China equities will likely strengthen due to a reversal in both zero-Covid and property tightening.

    • BlackRock Investment Institute

      The new regime of greater macro and market volatility is playing out. A recession is foretold; central banks are on course to overtighten policy as they seek to tame inflation. This keeps us tactically underweight developed market equities. We expect to turn more positive on risk assets at some point in 2023 – but we are not there yet. And when we get there, we don’t see the sustained bull markets of the past.

    • BlackRock Investment Institute

      We see private markets as a core holding for institutional investors. The asset class isn’t immune to macro volatility and we are broadly underweight as we think valuations could fall, suggesting better opportunities in coming years than now. Yet for strategic investors, asset classes such as infrastructure could provide a way to play into structural trends.

    • BNP Paribas

      The dollar continues to face negative structural factors and the US yield advantage is probably peaking. However, we expect risk-off market moves to provide safe-haven support to the dollar over the next three to six months. When risky assets base, we expect the dollar to peak and to end 2023 at weaker levels than present. In general, duration-sensitive currencies are likely to outperform equity-sensitive ones. Like the market more broadly, FX vol will be driven more by data than rates, in our view. We expect high vol-of-vol.

    • BNP Paribas

      We expect new lows for equities in 2023. The 2022 correction has been mostly valuation-driven, and we expect 2023 to be all about earnings, supporting higher realized volatility.

    • Comerica Wealth Management

      Fixed income investors likely have seen the worst of price depreciation and can now look for improved yields to contribute to total return. After enduring a volatile start to 2023, we look for market interest rate volatility to settle down, with the yield on the benchmark 10-year Treasury finishing the year in the 3.75% range.

    • Comerica Wealth Management

      Given this backdrop, our fixed income positioning favors quality, with investment grade corporate bonds offering a combination of relative valuation and income. The current volatility in bond yields leads us to take interest rate risk on corporate credit over government bonds, as these securities offer quality ratings and strong balance sheets. We encourage investors not to get caught up in the pursuit of higher yielding bonds.

    • Comerica Wealth Management

      We remain cautious on longer-term US Treasuries in the coming months as persistently high inflation will likely lead to further volatility as investors demand a higher-term premium. We believe shorter-dated Treasuries, however, are closer to pricing in a peak for policy rates and offer relatively attractive income opportunities.

    • Comerica Wealth Management

      Given our base case, the mild-recession scenario, as well as the possibility for a hard landing scenario, it is important for investors to remain cautious and not get too aggressive during bear market rallies. We anticipate heightened market volatility in the months and quarters ahead until the market gets comfortable with the potential for peaks in market interest rates, the dollar, and monetary policy along with troughs in GDP, P/Es, and EPS.

    • Commonwealth Financial Network

      Another investment-grade sector that is presenting attractive value as of late is the corporate space, specifically A-rated securities. In tax-free and tax-deferred accounts, we believe the current yield can be an attractive prospect for investors willing to accept some level of volatility.

    • Credit Suisse

      With inflation likely to normalize in 2023, fixed-income assets should become more attractive to hold and offer renewed diversification benefits in portfolios. US curve “steepeners,” long-duration US government bonds (over euro zone government bonds), emerging-market hard currency debt, investment grade credit and crossovers should offer interesting opportunities in 2023. Risks for this asset class include a renewed phase of volatility in rates due to higher-than-expected inflation.

    • Deutsche Bank

      Equity markets are projected to move higher in the near term, plunge as the US recession hits and then recover fairly quickly. We see the S&P 500 at 4,500 in the first half, down more than 25% in the third quarter, and back to 4,500 by year end 2023.

    • Fidelity

      We believe defensive positioning will remain important for investors going into 2023. Cash and uncorrelated assets will form a key component of multi asset portfolios until volatility subsides. Government bonds are also likely to have a role to play, especially now that yields are much more attractive.

    • Fidelity

      The time will come to allocate back into equities too. But for now, the deteriorating environment is not reflected in earnings forecasts or valuations, implying there could be further downside to come. We expect volatility to remain high, and sentiment is low enough that sharp risk-on bounces will be likely, if short-lived.

    • Franklin Templeton

      Recession and subsequent recovery may well be rapid and create market volatility. We believe it will be as important as ever to be diversified and actively select investments, particularly when tilting toward risk assets.

    • Franklin Templeton

      Bonds will likely rally as the US Federal Reserve achieves its goals, whether the US economy’s landing is soft or hard. Equities are less likely to perform as well — unless the landing is soft. Otherwise, falling profits will offset falling bond yields and equities are unlikely to advance. That outcome is also a recipe for elevated equity volatility.

    • Generali Investments

      Equity multiples dropped in 2022 but appear too high still relative to real bond yields. Earnings consensus for 2023 (single digit positive) also appears too optimistic. Our sector/style preference is mixed, but cyclicals look rich at the turn of the year, while the 2022 outperformance of value will run out of steam along with bond yields. Over 12 months, thanks to bottoming earnings, the end of central bank tightening, and a continuing fall in bond volatility, we expect positive total returns of 3% to 6%.

    • Generali Investments

      The fundamentally overvalued dollar is past peak. The Fed’s final hike looming for early spring 2023 is set to reduce rates uncertainty (a previous dollar boost) and path the way to narrowing yield gaps vs major peers. Initially, the transition is likely to prove volatile, though. The euro is still to feel the pain from recession and the energy crunch, leaving the currency shaky near term. But fading recession forces by early spring may mark the start of ensuing capital inflows to the euro area and a more sustained euro recovery.

    • Goldman Sachs

      While bonds have been especially volatile of late, there are signs that these swings are peaking. Higher yields have also reduced the duration risk (the risk that a bond’s price will fall as rates climb) for fixed-income assets at the same time that economic growth is becoming more of a concern. That all suggests that risks are piling up for the equity market next year while bonds might become less risky.

    • Invesco

      While present valuations are not likely representative of current clearing prices, we remain optimistic on long-term, secular drivers within real estate, taking a defensive approach while remaining opportunistic amid volatility.

    • JPMorgan

      The good news is that central banks will likely be forced to pivot and signal cutting interest rates sometime next year, which should result in a sustained recovery of asset prices and subsequently the economy by the end of 2023. The bad news is that in order for that pivot to happen, we will need to see a combination of more economic weakness, an increase in unemployment, market volatility, decline in levels of risky assets and a fall in inflation.

    • Morgan Stanley

      The S&P 500 will tread water, ending 2023 around 3,900, but with material swings along the way.

    • Morgan Stanley

      Equities next year, however, are headed for continued volatility, and we forecast the S&P 500 ending next year roughly where it started, at around 3,900. Consensus earnings estimates are simply too high, to the point where we think companies will hoard labor and see operating margins compress in a very slow-growth economy.

    • Ned Davis Research

      A choppy equity uptrend is likely in 2023, and a severe global recession would increase the correction risk and elevate the volatility. But our base case is that 2023 will include increasing confirmation that global equities have entered a cyclical bull market that started with the October lows, reconfirming the continuation of the secular bull market that started in 2009.

    • Ned Davis Research

      We are watching for better Technology stock performance to support global breadth and US relative strength. While a risk for Europe is that too much good news has been discounted too early, a choppy uptrend is likely for European equities. Cyclical sectors should outperform defensive sectors.

    • Ned Davis Research

      With interest rate volatility subsiding, MBS and long-term corporate spreads should narrow, leading to outperformance. EM bonds should also be supported. And EM equities are likely to recover as EM currencies strengthen and the dollar weakens, consistent with a continuing recovery in gold.

    • Neuberger Berman

      We think the next 12 months are likely to see this cycle’s peaks in global inflation, central bank policy tightening, core government bond yields and market volatility, as well as troughs in GDP growth, corporate earnings growth and global equity market valuations. But we do not believe this will mark a reversion to the post-2008 “new normal”. We see structural forces behind persistently higher inflation — and therefore a persistently higher neutral interest rate, a higher cost of capital and lower asset valuations.

    • Neuberger Berman

      We see bond investors standing up more strongly for their interests against policymakers. Markets are punishing policy inconsistencies between fiscal and monetary authorities within sovereigns; and excessive fiscal or monetary policy divergences between sovereigns. We think core government bond yields may be range-bound where policies are consistent, but potentially higher and more volatile where policies are inconsistent.

    • Neuberger Berman

      Among liquid alternatives, we think global macro and other trading-oriented hedged strategies can continue to find opportunity amid volatility. We anticipate increasing opportunities to provide niche capital solutions at attractive or even stressed yields as debt structures are reworked. And on the illiquid side, we think private equity secondaries has become a buyers’ market. Economic strains could also open up long-term value opportunities in inflation-sensitive real assets, in markets both liquid (certain commodities) and illiquid (real estate).

    • Northern Trust

      Northern Trust expects 2023 to be a turbulent year as conditions pivot from inflation and monetary policy fears to a weak global economy, but the firm also expects market volatility to somewhat temper due to lower inflation and a pause in central bank interest rate increases. A reduction in rates is not seen as likely. We see downside risk from lower corporate profits and revenues, but with upside potential from better sentiment.

    • Northern Trust

      While China’s reopening incrementally improves the outlook for emerging market equities, the reopening process is likely to be bumpy. We prefer to play the China reopening through non-EM assets, and have a bias for developed market equities where there is greater clarity.

    • Northern Trust

      Investment grade fixed income is our largest underweight. Barring a significant economic downturn, the magnitude of any longer term rate decline should be limited and potentially more constructive for risk asset returns. We prefer credit over term (interest rate) risk, especially as rate volatility remains high.

    • Northern Trust

      We are equal-weight inflation-linked bonds on the basis that central banks have the tools and perceived willingness to contain inflation, but that this is mostly reflected in valuations and the path back toward target levels may prove difficult.

    • Northern Trust

      We are equal-weight both global real estate and listed infrastructure. Global real estate valuations make for a compelling long-term investment opportunity, but interest rate volatility keeps us at a strategic weighting for now. While we like listed infrastructure as a risk asset that can also provide downside protection, we see better risk-reward elsewhere.

    • Nuveen

      We expect the all-too-familiar headwinds of 2022 (persistent inflation, rising yields, hawkish central banks and a rocky geopolitical landscape) to drive volatility and uncertainty through the start of next year.

    • Nuveen

      We believe inflation is moderating, which should provide some tailwinds for stocks in 2023. In particular, we favor dividend-growers, an area where relatively higher income can help offset price return volatility.

    • Nuveen

      Headwinds for private real estate are rising, and we expect volatility will persist (and perhaps rise). One approach to this more challenging environment is to focus on real estate debt over equity (partially due to lenders broadly expecting rates to eventually decline). Across debt markets, we see the best opportunities in the industrial sector and, to a lesser extent, housing.

    • Principal Asset Management

      While the Federal Reserve will hike a few more times in 2023, it is likely nearing the completion of its tightening cycle. This implies that bonds will be able to support portfolios as recession approaches, with government bond yields under downward pressure and securitized debt typically providing protection during periods of volatility and risk.

    • Societe Generale

      Systemic risks are a common feature after a round of policy tightening of this kind. Holding gold and the Swiss franc can help stabilize portfolio volatility, in our view.

    • T. Rowe Price

      The balance between central bank tightening, high inflation, and slowing growth could produce rate volatility. Higher yields, especially for high yield bonds, are supported by strong fundamentals and can help provide a buffer against credit weakness.

    • Truist Wealth

      We anticipate a continuation of this year’s elevated rate volatility and strained liquidity conditions in 2023.

    • UBS Asset Management

      Macro and cross-asset volatility are unlikely to fade away along with the calendar year. And the distribution of outcomes remains much wider than investors became accustomed to in the previous cycle. Our focus is therefore on positioning over the coming months as opposed to the coming year, and we are ready to pivot as the business cycle evolves.

    • Vanguard

      In credit, valuations are fair, but the growing likelihood of recession and declining profit margins skew the risks toward higher spreads. Although credit exposure can add volatility, its higher expected return than US Treasuries and low correlation with equities validate its inclusion in portfolios.

    • Wells Fargo

      Realized and implied volatility remain high in rates and FX, but markets are tamer than they have been in the second half of 2022.

  17. YIELDS
    • Amundi Asset Management

      As bonds regain diversification qualities after the surge in yields in 2022 and looming recession risks next year, a revival of the 60-40 portfolio allocation is in sight.

    • AXA Investment Managers

      For bond markets, the trade-off between return and risk has improved. Yields are higher – compared to the situation in recent years – and this provides more carry for bond holders and better income opportunities for new fixed income investments. At the same time, with higher yields, fixed income has the potential to play a more significant role in multi-asset portfolios.

    • AXA Investment Managers

      For now, it is an environment that supports exposure to the shorter maturity part of bond markets. Such strategies currently provide the highest yields seen for years. Extending duration along the curve also locks in better yield and provides optionality to recognize capital gains once markets start to anticipate central banks easing. Our base case is that this is unlikely until late 2023 or 2024, but markets tend to look forward to these events.

    • AXA Investment Managers

      Today’s yields are significantly higher than in recent years. This provides attractive return potential as corporates have generally managed balance sheets well, terming out debt, containing leverage levels and ensuring healthy interest coverage. Over the medium term, today’s spreads will allow investors to benefit from capital gains when corporate fundamentals do improve.

    • AXA Investment Managers

      Core credit investment strategies can achieve higher yields with less credit risk. Subsequently investors need not chase returns in more economically-sensitive sectors when more defensive credit sectors offer attractive yields.

    • Bank of America

      US rates stay elevated but expect a decline by year end 2023. The yield curve is expected to dis-invert and rates volatility should fall. Both two-year and 10-year US Treasuries should end 2023 at 3.25%. Sectors hurt by rising rates in 2022 may benefit in 2023.

    • BCA Research

      Global bond yields will move sideways in the first half of next year, as the impact of falling inflation broadly offsets the impact of better-than-expected growth data. Yields should drop modestly in the second half of the year as the US economy edges closer to recession.

    • BlackRock Investment Institute

      Higher yields are a gift to investors who have long been starved for income. And investors don’t have to go far up the risk spectrum to receive it. We like short-term government bonds and mortgage securities for that reason.

    • BNY Mellon Investment Management

      Is it time to call the bottom and go overweight equities? According to our outlook – no. There’s a stronger case for increasing allocations to fixed income, which does well in a couple of diametrically opposed circumstances: first, if there’s a soft landing and rates don’t have to rise nearly as much as markets currently expect. Or second, if rates do rise and the economy goes into recession, curves invert further and eventually fall.

    • Brandywine Global Investment Management

      We are increasingly confident about the destination of bond markets in 2023, and that is toward a disinflationary environment. We are less certain about the path and timing of the journey. The bond math now works in favor of the asset class, meaning that the coupon return will become a more influential source of the total return for bonds.

    • Brandywine Global Investment Management

      We expect a rebound for corporate bonds in 2023. Again, there will be sectors that need to be avoided, and specific credits that might be impaired. However, broadly speaking, today offers a very attractive staring point, i.e. the “bond math” works for the investor.

    • Carmignac

      Corporate credit offers interesting opportunities, because on the risk side, the expected rise in default rates is already largely incorporated in current prices. And on the reward side, embedded yields are at levels consistent with the long-term outlook for equities.

    • Carmignac

      On the sovereign bond side, weaker economic growth is generally associated with lower bond yields. However, given the inflationary environment, while the pace of tightening may slow or even stop, it is unlikely to reverse soon.

    • Citi Global Wealth Investments

      Broader investment-grade bonds offer a range of higher yields at every maturity. And loans in private markets – think private equity lending – offer larger yield premiums with lower loan-to-value ratios than at any time since 2008-09.

    • Comerica Wealth Management

      Fixed income investors likely have seen the worst of price depreciation and can now look for improved yields to contribute to total return. After enduring a volatile start to 2023, we look for market interest rate volatility to settle down, with the yield on the benchmark 10-year Treasury finishing the year in the 3.75% range.

    • Comerica Wealth Management

      Given this backdrop, our fixed income positioning favors quality, with investment grade corporate bonds offering a combination of relative valuation and income. The current volatility in bond yields leads us to take interest rate risk on corporate credit over government bonds, as these securities offer quality ratings and strong balance sheets. We encourage investors not to get caught up in the pursuit of higher yielding bonds.

    • Comerica Wealth Management

      In the municipal bond space, we favor investment grade over high yield offerings, particularly given their attractive tax-equivalent yields. The market for mortgage-backed securities, however, faces further challenges due to the combination of a tighter Fed, rising mortgage rates, a slowdown in housing, and the end of monetary support.

    • Commonwealth Financial Network

      As of November 10, 2022, the yield-to-worst on the Bloomberg US Corporate High Yield Index is 9.1%. This level has been reached only three times in the past decade. The price of bonds in the index is averaging a market value of $85.70. This price isn’t too far off from where things ended up in the 2020 downturn. Effectively, investors are being paid to wait for bonds to reach their maturity value. As investors consider their fixed income outlook and allocations, this is one area that deserves some attention.

    • Commonwealth Financial Network

      Another investment-grade sector that is presenting attractive value as of late is the corporate space, specifically A-rated securities. In tax-free and tax-deferred accounts, we believe the current yield can be an attractive prospect for investors willing to accept some level of volatility.

    • Commonwealth Financial Network

      For investors with a high risk tolerance, emerging market debt offers some of the most attractive yields in the fixed income space.

    • Deutsche Bank

      The 10-year Treasury yield is projected to remain in its recent range in the months to come, and then rally moderately around midyear as the US downturn approaches. The German Bund yield should rise to 2.60% by the second quarter before remaining relatively stable in comparison to Treasury yields.

    • DWS

      On the corporate side, profits are likely to come under pressure, but much less so than in past recessions. In view of the higher interest rate level, bonds are significantly more attractive than in the past, as a yield generator and as a diversification instrument. In general, however, the return prospects of risk assets are limited, but high enough to be able to beat inflation.

    • DWS

      On the credit side, there are currently no excessively high risks in sight. Senior bank bonds and hybrid corporate bonds with yields of 6% to 7% are particularly promising. Also interesting are the riskier euro high-yield bonds, which currently have yields of 7.3%. At 0.7%, default rates are at a historically very low level. They are likely to rise, but much less than in previous phases of an economic downturn.

    • DWS

      The yield advantage of real estate investments over 10-year government bonds has shrunk significantly in 2022; real estate valuations have come under pressure. This trend is likely to reverse next year.

    • Fidelity

      We believe defensive positioning will remain important for investors going into 2023. Cash and uncorrelated assets will form a key component of multi asset portfolios until volatility subsides. Government bonds are also likely to have a role to play, especially now that yields are much more attractive.

    • Franklin Templeton

      Investment-grade corporates look like an attractive place to us for investors seeking relatively safe income. High-yield credit looks attractive for investors with a multi-year time horizon, in our view, as current yields and active selection provide a cushion for potentially near-term higher defaults in the sector.

    • Franklin Templeton

      Bonds will likely rally as the US Federal Reserve achieves its goals, whether the US economy’s landing is soft or hard. Equities are less likely to perform as well — unless the landing is soft. Otherwise, falling profits will offset falling bond yields and equities are unlikely to advance. That outcome is also a recipe for elevated equity volatility.

    • Generali Investments

      We see 10-year Treasuries trading at 3.25% at the end of 2023. We are less confident about Bunds, despite our slightly less hawkish ECB views (relative to market pricing).

    • Generali Investments

      To get extra yield, we recommend going for long duration in investment grade, although curves are already very flat, and to favor subordination risk to credit risk except in the real estate sector.

    • Goldman Sachs

      After a sharp increase in bond yields this year, new and potentially less risky alternatives are emerging in fixed income: US investment grade corporate bonds yield almost 6%, have little refinancing risk and are relatively insulated from an economic downturn. Investors can also lock in attractive real (inflation-adjusted) yields with 10-year and 30-year Treasury inflation protected securities (TIPS) close to 1.5%.

    • Goldman Sachs

      Strategists at Goldman Sachs expect yields on two- and 10-year Treasuries to rise higher before they peak in the first half of 2023.

    • Goldman Sachs

      With inflation still running hot, central banks are more likely to try to cool economic growth and tighten financial conditions than to boost them. And if they don’t fight inflation, there’s a risk that longer-dated bond yields will increase anyway because of rising long-term inflation expectations.

    • Hirtle Callaghan

      Within credit, we remain slightly underweight duration but will extend to the full duration of the benchmark as rates rise from here. We still like TIPS in this environment. The real yield has come down slightly (with the five-year TIPS real yield at 1.5%), but they have the benefit of offering inflation protection.

    • Hirtle Callaghan

      We continue to watch corporate credit spreads. Today they are at the high end of the normal range and we don’t have high yield as a component of our core portfolios. However, we view high yield opportunistically and are watching for them to widen and become more attractive.

    • Hirtle Callaghan

      We also like private credit where we see greater opportunity with covenants getting stronger. When money was “cheap” covenants were lighter and offered less protection to investors. That environment has changed, and we believe private credit offers attractive yields with better protection.

    • HSBC Asset Management

      For equities, we think price to earnings ratios in developed markets have scope to fall given where bond yields are. But the big risk remains corporate earnings downgrades, which will probably be a driver of weak equity market performance.

    • Invesco

      We remain underweight equity due to the possibility of further weakness in growth in favor of fixed income, which now offers attractive 5-6% yields in investment grade or 8-9% yields in risky credits.

    • JPMorgan

      10-year U.S. Treasury yields are expected to fall to 3.4% by the end of 2023 and real yields are expected to decline.

    • JPMorgan

      Relative to base metals, the outlook for precious metals is more positive, with all but palladium expected to end 2023 higher. With the Fed on pause, decreasing US real yields will drive the bullish outlook for gold and silver prices over the latter half of 2023. Gold prices are forecast to push up to an average $1,860 per troy ounce in the fourth quarter of 2023.

    • JPMorgan Asset Management

      Looking forward, it is clear that the income on offer from bonds is now far more enticing. The global government bond benchmark has seen yields rise by roughly 200 basis points since the start of the year, while high-yield bonds are again worthy of such a title with yields approaching double digits. Valuations in inflation adjusted terms also look more attractive – while the roughly 1% real yield on global government bonds may not sound particularly exciting, it is back to the highest level since the financial crisis and around long-term averages.

    • JPMorgan Asset Management

      Given this uncertainty about inflation and growth, and the chunky yields available in short-dated government bonds, investors might want to spread their allocation along the fixed income curve, taking more duration than we would have advised for much of the year.

    • JPMorgan Asset Management

      Within credit markets, we believe that an “up-in-quality” approach is warranted. The yields now available on lower quality credit are certainly eye-catching, yet a large part of the repricing year to date has been driven by the increase in government bond yields. High yield credit spreads still sit at or below long-term averages both in the US and Europe. It is possible that spreads widen moderately further as the economic backdrop weakens over the course of 2023.

    • JPMorgan Asset Management

      Value stocks are now quite reasonably priced compared with history. We have stronger conviction that value stocks will be higher by the end of 2023 than we do for those growth stocks that still look expensive. However, a peak in government bond yields could provide some support to growth stock valuations in 2023.

    • Macquarie Asset Management

      Bond yields rose considerably in 2022, offering attractive valuations and strong protection levels for investors in investment grade, high yield markets, and developed world sovereigns. However, in Macquarie Asset Management’s view, a defensive position is warranted given the potential for recessions and inflation to undermine the strong start to 2023.

    • Macquarie Asset Management

      The considerable rise in bond yields, to levels not seen in almost 15 years, offers attractive valuations and strong protection levels.

    • Morgan Stanley

      10-year Treasury yields will end 2023 at 3.5% vs. a 14-year high of 4.22% in October 2022.

    • NatWest

      With the US expected to enter a recession starting in the first quarter and lasting through to the second, and with our expected terminal Fed funds rate of 5% well-priced, we look for yields to peak if they have not already—we see 10-year yields ending 2023 at 3.35%.

    • Ned Davis Research

      Bonds could easily rally through yield support levels on evidence of recession, slowing inflation, and shifting policy. We raised our bond exposure to 100% of benchmark duration and are neutral on the yield curve. We are overweight Treasuries and MBS and underweight high yield, ABS and TIPS. We are marketweight everything else.

    • Ned Davis Research

      We are currently bullish gold. The majority of our Gold Watch report indicators are now bullish and gold stands to benefit from seasonality and declining bond yields.

    • Ned Davis Research

      We are bearish on the dollar due to worsening momentum and model readings. The dollar downtrend can be expected to continue as long as nominal and real US bond yields continue to fall relative to non-US yields.

    • Neuberger Berman

      We think the next 12 months are likely to see this cycle’s peaks in global inflation, central bank policy tightening, core government bond yields and market volatility, as well as troughs in GDP growth, corporate earnings growth and global equity market valuations. But we do not believe this will mark a reversion to the post-2008 “new normal”. We see structural forces behind persistently higher inflation — and therefore a persistently higher neutral interest rate, a higher cost of capital and lower asset valuations.

    • Neuberger Berman

      We see bond investors standing up more strongly for their interests against policymakers. Markets are punishing policy inconsistencies between fiscal and monetary authorities within sovereigns; and excessive fiscal or monetary policy divergences between sovereigns. We think core government bond yields may be range-bound where policies are consistent, but potentially higher and more volatile where policies are inconsistent.

    • Neuberger Berman

      Among liquid alternatives, we think global macro and other trading-oriented hedged strategies can continue to find opportunity amid volatility. We anticipate increasing opportunities to provide niche capital solutions at attractive or even stressed yields as debt structures are reworked. And on the illiquid side, we think private equity secondaries has become a buyers’ market. Economic strains could also open up long-term value opportunities in inflation-sensitive real assets, in markets both liquid (certain commodities) and illiquid (real estate).

    • Northern Trust

      High yield remains our biggest tactical overweight. We expect default rates to rise off of record lows but remain below the long-term average given strong credit fundamentals that support issuers’ ability to pay and a benign maturity schedule. Combined with an improved high yield market quality and income yield of around 8%, we find high yield attractive.

    • Northern Trust

      The opportunity cost of holding cash has narrowed with short-term interest rates around 4%. Having some cash on hand is warranted for yield and dry powder for opportunities that arise.

    • Northern Trust

      We are neutral duration risk. In 2023 we expect Fed rate hikes to total 0.50% to 0.75%, to reach a steady policy rate of 5%, likely sufficiently high for a Fed pause. Treasury yields are likely move slightly higher but remain stable thereafter as we think labor market strength will make the Fed hesitant to reverse course. Non-US interest rates to hold steady or even decline on less inflation risk and higher recession risk than in the US.

    • Pimco

      We see ample evidence that both the near- and long-term case for fixed income is strong today. Higher starting yields have increased long-term return potential, while higher-quality bonds should resume their role as a reliable diversifier against equities if a recession materializes.

    • Pimco

      In the US, unlike previous cycles, we do not expect a rapid transition from Fed hikes to rate cuts and the ensuing market support. But even without a significant rate rally, US Treasury yields are already high enough to offer compelling return just from the income alone. In addition, a stabilization in rates could draw more investors back into the asset class.

    • Principal Asset Management

      While the Federal Reserve will hike a few more times in 2023, it is likely nearing the completion of its tightening cycle. This implies that bonds will be able to support portfolios as recession approaches, with government bond yields under downward pressure and securitized debt typically providing protection during periods of volatility and risk.

    • Principal Asset Management

      Within credit markets, the longer duration, high quality profile of investment grade should be capitalized. Importantly, credit now offers considerably more attractive yields than in recent years, finally meriting portfolio allocation.

    • Robeco

      Comparing high yield valuations with those of equities, high yield looks more attractive at this stage. We expect an earnings recession to gain traction as we enter 2023: earnings per share could drop 20-30%. This is not yet fully recognized by the equity market.

    • Robeco

      While the dollar bull market could prove to be more persistent as the Fed shows reluctance to pivot and as potential liquidity events trigger safe-haven flows towards the US, the dollar bull run will likely peak in 2023. This will be on the back of declining rate differentials between the US and the rest of the world, and a peak in US growth versus the rest of the world.

    • Societe Generale

      We remain confident that 10-year US treasury yields have peaked or are close to peaking in a 4% to 4.5% range, with a capital gains potential by end-2023, as the Fed continues to provide more color on the nature of its pivot. They have already announced a lower magnitude of rate hikes, after which we can expect a no-hike stance, before markets should then start to price in expectations of rate cuts. We prefer EM bonds to US Treasuries, in a clear switch.

    • State Street

      Although markets are projecting rates to decline by late 2023, central banks are likely to remain plenty aggressive in the near term. Until the Fed’s battle against inflation turns less aggressive, the elevated yields in defensive short-duration sectors may help investors balance income and total return in order to preserve capital.

    • State Street

      What’s the upshot for bond portfolios if we see more of what we saw in 2022 for most of 2023? Core bonds with over six years of duration are likely to once again post duration-induced price declines. Meanwhile, shorter-duration segments may offer more attractive yield and total return prospects as result of less rate risk.

    • State Street

      When viewed relative to US investment-grade corporate bonds, the yield differential of high yield is tighter than the long-term historical average. This indicates that investment-grade corporate bonds have a slightly more relative attractive yield profile given the many fundamental risks in the market.

    • State Street

      Higher rates have created attractive defensive yield opportunities on the short end of the curve — namely Treasuries with less than one-year of maturity given the recent inversion of the three-month and 10-year yield spread. An aggressive Fed and the likelihood for more rate hikes to come mean yields on three to 12 month T-bills are now higher than those of all different tenors. And given the maturity band, the rate risk for this exposure is minimal.

    • State Street

      The one- to three-year investment-grade space, a segment carrying an index-weighted average rating of A3/BAA1, represents a high-quality value opportunity to pick up a yield that is on par with the US equity market earnings yield (5.1%) and above that of the broader US aggregate bond market (4.7%), without taking on any more duration or credit risk than one would have assumed over the past 20 years in this portion of the credit market.

    • State Street

      The softening of the dollar would be net positive for emerging-market local debt, as in the months when EM currencies rallied, EM local debt’s return was positive 86% of the time with an average monthly gain of 2.27%. as a result of the demoralizing returns, a potential dollar bear allocation offers a generationally attractive yield that just may be worth the risk.

    • T. Rowe Price

      The balance between central bank tightening, high inflation, and slowing growth could produce rate volatility. Higher yields, especially for high yield bonds, are supported by strong fundamentals and can help provide a buffer against credit weakness.

    • T. Rowe Price

      Emerging-market currencies and local currency yields are at attractive levels, reflecting cautious investor sentiment. As the Fed slows the pace of interest rate tightening, EM currencies may benefit.

    • T. Rowe Price

      A slowdown in the pace of Fed rate hikes should narrow rate differentials, softening dollar strength. Given the level of overvaluation, economic surprises — such as a sooner‑than‑expected Fed pivot — easily could push the US currency lower in 2023.

    • T. Rowe Price

      US investment grade yields could peak in the first half of 2023 as inflation cools, allowing the Fed to moderate policy. Slowing growth and inflation could support longer‑duration bonds. Credit may prove resilient thanks to strong fundamentals.

    • TD Securities

      We expect a decline in long end rates of global bond curves; the front end should be anchored by hawkish central banks paralyzed by still too-high inflation.

    • Truist Wealth

      In the coming year, we expect inflation fears to evolve into growth concerns, particularly in Europe. The European Central Bank will likely be less aggressive in their policy response given Europe’s challenging macro backdrop. This would cap upward moves in euro zone yields. As a result, strong foreign demand for the relative yield advantage and safe-haven quality offered by US government debt should apply some downward pressure on US yields.

    • UBS

      Given our expectations of sharper US disinflation and rapid Fed easing in 2023, we expect US 10-year yields will fall 150 basis points to end the year at 2.65%. Ten-year real yields retrace half of this year’s rise to end 2023 at 65bps. We expect 10-year Bunds and Gilts to underperform Treasuries as “single mandate” ECB and BOE stay on hold for longer. JGBs do little as the BOJ persists with YCC. Australia and Korea duration are our favored APAC picks.

    • UBS Asset Management

      In US and European credit,, investment grade bond yields look increasingly attractive as a balance between a potentially resilient economy and more range-bound government bond yields.

    • UniCredit

      Long-dated yields are likely to be close to their peaks. Convincing signals that inflation is easing will give central banks a green light to rein in some of the recent tightening, leading to a bull market revival and curve steepening.

    • Vanguard

      Although rising interest rates have created near-term pain for investors, higher starting interest rates have raised our return expectations more than twofold for US and international bonds. We now expect US bonds to return 4.1%–5.1% per year over the next decade, compared with the 1.4%–2.4% annual returns we forecast a year ago. For international bonds, we expect returns of 4%–5% per year over the next decade, compared with our year-ago forecast of 1.3%–2.3% per year.

    • Wells Fargo

      Long term bond yields rise faster in the US than other G10 markets. The 10-year Treasury nominal yield tops 4% soon, and there is a decent chance it hits 4.25% by March. Germany and UK 10-year yields increase only 10 to 20 basis points by mid-year.

    • Wells Fargo Investment Institute

      We expect US Treasury yields to decline in 2023 as we go through an economic recession and in anticipation of policy rate cuts from the Fed.

    • Wells Fargo Investment Institute

      Long-term yields tend to peak before the Fed finishes raising rates. We favor remaining nimble in bond portfolio allocations with a barbell strategy that lengthens maturities but also takes advantage of ultra-short term yields. An eventual economic recovery in the latter half of the year should begin to support credit-oriented asset classes and sectors.

  18. INCOME
    • AXA Investment Managers

      If equities struggle with the growth environment, bonds can provide a hedge and an alternative to those investors putting a premium on income.

    • BlackRock Investment Institute

      Higher yields are a gift to investors who have long been starved for income. And investors don’t have to go far up the risk spectrum to receive it. We like short-term government bonds and mortgage securities for that reason.

    • BNY Mellon Investment Management

      Regionally, we prefer US equity to developed international and emerging markets primarily due to the higher (albeit still low) likelihood of an engineered soft landing, which would boost US equity disproportionally. The outlook suggests staying defensive on a sector and factor basis, preferring healthcare and consumer staples, and quality and low volatility, respectively. We also continue to favor higher income and value equities for their lower exposure to re-rating risk and wide multiples spread to growth.

    • Comerica Wealth Management

      Given this backdrop, our fixed income positioning favors quality, with investment grade corporate bonds offering a combination of relative valuation and income. The current volatility in bond yields leads us to take interest rate risk on corporate credit over government bonds, as these securities offer quality ratings and strong balance sheets. We encourage investors not to get caught up in the pursuit of higher yielding bonds.

    • Comerica Wealth Management

      We remain cautious on longer-term US Treasuries in the coming months as persistently high inflation will likely lead to further volatility as investors demand a higher-term premium. We believe shorter-dated Treasuries, however, are closer to pricing in a peak for policy rates and offer relatively attractive income opportunities.

    • Franklin Templeton

      Expensive equity prices and the potential for a peak in interest rates have been driving a preference toward fixed income. We expect investors to search for quality and perhaps increase duration in 2023. Extending duration may provide compelling income opportunities, and US Treasuries could be the core for building duration.

    • Franklin Templeton

      Investment-grade corporates look like an attractive place to us for investors seeking relatively safe income. High-yield credit looks attractive for investors with a multi-year time horizon, in our view, as current yields and active selection provide a cushion for potentially near-term higher defaults in the sector.

    • JPMorgan Asset Management

      We have higher conviction in cheaper stocks which have already priced in a lot of bad news and are offering dependable dividends.

    • JPMorgan Asset Management

      Even though we expect a challenging macroeconomic environment in 2023 and downward corporate earnings revisions, we think income stocks could have a good year with dividends proving more resilient than earnings. For investors that are tentatively looking to increase their equity exposure, an income tilt could prove relatively resilient in the worst case scenario, while also providing the potential for outperformance in our more optimistic scenario for markets given attractive valuations.

    • Macquarie Asset Management

      Investors are likely to continue to be attracted to equity investments that are defensive, have high yields, and offer inflation protection. Infrastructure has all these traits in spades.

    • Morgan Stanley

      Securitized products, such as mortgage-backed securities, auto-backed securities and collateral debt obligations, could offer income opportunities.

    • Morgan Stanley

      Investors should consider the higher-yielding parts of the equities market, including consumer staples, financials, healthcare and utilities.

    • Ned Davis Research

      For the first time in years, discounted bonds will be attractive for those investors who favor capital gains over interest income. Cash will also earn a positive nominal return and maybe a positive real return, and be a viable alternative for conservative investors.

    • Nuveen

      We believe inflation is moderating, which should provide some tailwinds for stocks in 2023. In particular, we favor dividend-growers, an area where relatively higher income can help offset price return volatility.

    • Nuveen

      We favor higher quality areas of the fixed-income market as well as diversified and flexible core plus mandates that can identify select higher-income investments. We’re also quite favorable toward preferred securities: The issuer base is in great fundamental shape and the sector is attractively valued.

    • Pimco

      In the US, unlike previous cycles, we do not expect a rapid transition from Fed hikes to rate cuts and the ensuing market support. But even without a significant rate rally, US Treasury yields are already high enough to offer compelling return just from the income alone. In addition, a stabilization in rates could draw more investors back into the asset class.

    • State Street

      Dividend strategies can serve as a bridge to move portfolios smoothly from a defensive stance to a more hopeful environment.

    • State Street

      Although markets are projecting rates to decline by late 2023, central banks are likely to remain plenty aggressive in the near term. Until the Fed’s battle against inflation turns less aggressive, the elevated yields in defensive short-duration sectors may help investors balance income and total return in order to preserve capital.

  19. VALUATIONS
    • Amundi Asset Management

      2023 will be a two-speed year, with plenty of risks to watch out for. Bonds are back, market valuations are more attractive, and a Fed pivot in the first part of the year should trigger interesting entry points.

    • Amundi Asset Management

      Given decelerating global growth and a profit recession in the first half of 2023, investors should remain defensive for now with gold and investment-grade credit the favored asset classes. However, they should be ready to adjust through the year to exploit market opportunities that will emerge, as valuations get more attractive. Headwinds should subside in the second half of 2023.

    • AXA Investment Managers

      Investors should be less confident about capital growth strategies as we enter 2023. Bond returns should improve relative to volatility and parts of the equity market are becoming cheap. As 2023 unfolds, there should be more clarity on the macro outlook. This should support positive, albeit prudent, portfolio return expectations.

    • AXA Investment Managers

      Even after the significant de-rating already seen, stock markets are still vulnerable to the expected earnings recession.

    • AXA Investment Managers

      Outside of the US, markets have seen significant declines in price-earnings multiples. European markets, for example, would be well placed to rally should there be positive developments in Ukraine. Asia will benefit from a post “zero-Covid” recovery in China. Long term, however, the US valuation premium is not likely to be challenged given the dominance of US technology, a greater level of energy security and more positive demographics. In the near term though, some highly-priced parts of the US market remain vulnerable.

    • Barclays

      We recommend bonds over stocks; equities are likely to bottom out only in the first half next year. The Fed funds rate is headed over 4.5%, so cash is a low-risk alternative that should drag on financial market valuations.

    • BlackRock Investment Institute

      Equity valuations don’t yet reflect the damage ahead, in our view. We will turn positive on equities when we think the damage is priced or our view of market risk sentiment changes. Yet we won’t see this as a prelude to another decade-long bull market in stocks and bonds.

    • BlackRock Investment Institute

      We see private markets as a core holding for institutional investors. The asset class isn’t immune to macro volatility and we are broadly underweight as we think valuations could fall, suggesting better opportunities in coming years than now. Yet for strategic investors, asset classes such as infrastructure could provide a way to play into structural trends.

    • BNP Paribas

      We see a transition from “rates risk” to “ratings risk” in 2023, with weaker fundamentals not yet in the price. US investment grade spreads will peak at 200 basis points, we expect, fully discounting a recession.

    • BNP Paribas

      We expect new lows for equities in 2023. The 2022 correction has been mostly valuation-driven, and we expect 2023 to be all about earnings, supporting higher realized volatility.

    • Brandywine Global Investment Management

      We are increasingly confident about the destination of bond markets in 2023, and that is toward a disinflationary environment. We are less certain about the path and timing of the journey. The bond math now works in favor of the asset class, meaning that the coupon return will become a more influential source of the total return for bonds.

    • Brandywine Global Investment Management

      When we look around the world, we find areas where negative sentiment clearly is excessive and is more than reflected in equity valuations. These include China, Europe, and Japan. We are overweight and expect the outcome to be better than what is reflected in market estimates and valuations.

    • Brandywine Global Investment Management

      US equities remain our biggest country underweight. We think there is more bad news to come, and market expectations and valuations are still too optimistic. It is clear to everyone, except the central bankers, that the Fed is on course for another major policy error. They may succeed in curing inflation but are also likely to seriously hurt the patient in the process. We are content to stay defensive and underweight the US until valuations offer a greater margin of safety, or the Fed alters its monetary policy.

    • Brandywine Global Investment Management

      We expect a rebound for corporate bonds in 2023. Again, there will be sectors that need to be avoided, and specific credits that might be impaired. However, broadly speaking, today offers a very attractive staring point, i.e. the “bond math” works for the investor.

    • Carmignac

      In equity markets, while the drop in valuations appear broadly consistent with a recessionary backdrop, there are wide disparities between regions – even more so on earnings. The eyes of global investors are focused on Western inflation and growth dynamics. Looking towards the East should prove salutary and offer most welcomed diversification.

    • Carmignac

      Unlike the bond market, equity prices do not incorporate the scenario of a severe recession, so investors need to be cautious. Japanese equities could benefit from the renewed competitiveness of the economy, boosted by the fall of the yen against the dollar. China will be one of the few areas where economic growth in 2023 will be better than in 2022.

    • Carmignac

      Corporate credit offers interesting opportunities, because on the risk side, the expected rise in default rates is already largely incorporated in current prices. And on the reward side, embedded yields are at levels consistent with the long-term outlook for equities.

    • Citi Global Wealth Investments

      Ahead of the expected recession, we are committed to selectivity and quality. This begins with fixed income, which we believe offers genuine portfolio value now for the first time in several years. Short-duration US Treasuries present a compelling alternative to holding cash. For US investors, municipal bonds also seek better risk-adjusted after-tax returns.

    • Citi Global Wealth Investments

      We expect that as 2023 progresses, opportunities to increase portfolio risk will evolve. Once interest rates peak, we will likely shift toward non-cyclical growth equities. These have already repriced lower, and we expect them to begin performing once more before cyclicals.

    • Citi Global Wealth Investments

      In our view, 2023 will potentially be a great vintage for alternative investments. Higher interest rates have caused a repricing of private assets amid much higher borrowing costs. As such, specialist managers will be able to deploy capital into areas of distress and illiquidity.

    • Columbia Threadneedle

      We will see greater dispersion in terms of valuation in 2023, with longer duration equity – companies with growth expectations farther out in the future – suffering more. Investors will have to be more careful about what they are willing to pay for future earnings, and demands for profitability will come sooner. All of this will mean that companies that aren’t able to deliver earnings are more likely to see the market take down their valuation.

    • Comerica Wealth Management

      We expect a retest of the October lows (around 3,500) in the S&P 500 Index, before investors price in a policy response and begin discounting recovery in late 2023 and early 2024. This scenario should experience flat profits in 2023 and expectations of 5% earnings gains in 2024, and we would view the S&P 500 as fairly valued within the range of 4,100-4,200 within the next 12 months.

    • Comerica Wealth Management

      Given this backdrop, our fixed income positioning favors quality, with investment grade corporate bonds offering a combination of relative valuation and income. The current volatility in bond yields leads us to take interest rate risk on corporate credit over government bonds, as these securities offer quality ratings and strong balance sheets. We encourage investors not to get caught up in the pursuit of higher yielding bonds.

    • Commonwealth Financial Network

      As a result of the 2022 selloff, fixed income asset classes may now offer some of the most attractive valuations we’ve seen in decades. The Fed has been very vocal about its goal of bringing inflation under control. If it meets its objective, which appears likely, interest rates should stabilize, which could support a number of segments in the fixed income universe.

    • Commonwealth Financial Network

      As of November 10, 2022, the yield-to-worst on the Bloomberg US Corporate High Yield Index is 9.1%. This level has been reached only three times in the past decade. The price of bonds in the index is averaging a market value of $85.70. This price isn’t too far off from where things ended up in the 2020 downturn. Effectively, investors are being paid to wait for bonds to reach their maturity value. As investors consider their fixed income outlook and allocations, this is one area that deserves some attention.

    • Credit Suisse

      We expect the environment for real estate to become more challenging in 2023, as the asset class faces headwinds from both higher interest rates and weaker economic growth. We favor listed over direct real estate due to more favorable valuation and continue to prefer property sectors with strong secular demand drivers such as logistics real estate.

    • DWS

      Tactically, we are quite bullish on European equities. The valuation discount to US stocks of 31% is more than double the average of the past 20 years. The outlook for value stocks, which have a higher weighting in European indexes than in US indexes, remains positive. The days of buying growth stocks at any price are over for now.

    • DWS

      The yield advantage of real estate investments over 10-year government bonds has shrunk significantly in 2022; real estate valuations have come under pressure. This trend is likely to reverse next year.

    • Fidelity

      The time will come to allocate back into equities too. But for now, the deteriorating environment is not reflected in earnings forecasts or valuations, implying there could be further downside to come. We expect volatility to remain high, and sentiment is low enough that sharp risk-on bounces will be likely, if short-lived.

    • Fidelity

      Were the US to head into recession next year, credit defaults would rise significantly. So far, the market is yet to reflect these risks, notably in high yield credit. Prudent credit selection within high yield is therefore essential.

    • Franklin Templeton

      Expensive equity prices and the potential for a peak in interest rates have been driving a preference toward fixed income. We expect investors to search for quality and perhaps increase duration in 2023. Extending duration may provide compelling income opportunities, and US Treasuries could be the core for building duration.

    • Generali Investments

      We continue to favor euro investment-grade credit, which is cheaper from a historical perspective than other credit segments (especially global high yield and US credit).

    • Generali Investments

      We stay defensive on high yield, as defaults are starting to pick up and spreads seem to be mispricing the developing recession pressures.

    • Generali Investments

      Equity multiples dropped in 2022 but appear too high still relative to real bond yields. Earnings consensus for 2023 (single digit positive) also appears too optimistic. Our sector/style preference is mixed, but cyclicals look rich at the turn of the year, while the 2022 outperformance of value will run out of steam along with bond yields. Over 12 months, thanks to bottoming earnings, the end of central bank tightening, and a continuing fall in bond volatility, we expect positive total returns of 3% to 6%.

    • Hirtle Callaghan

      In the case of a soft landing, the picture is brighter for equities if investors can look through this next year’s earnings. Valuations have come down significantly, pricing in much of the bad news for this coming year. We are positive on the outlook for corporate growth looking a couple of years out if the Fed can achieve the soft landing it is hoping for.

    • HSBC Asset Management

      A turnaround could follow later in the year amid cooling inflation – aided by weaker labor and housing markets – which means central banks can pause rate hikes, with even the prospect of rate cuts later in the year. With better visibility on the policy and economic outlook, investor sentiment will recover from rock bottom levels to take advantage of much improved valuations in riskier asset classes such as equities and high-yield corporate bonds.

    • HSBC Asset Management

      Attractive valuations, a peaking US dollar and China policy support creates opportunity for EMs in 2023. Importantly, dispersion between individual markets in Asia has widened materially, and stock level dispersion is even greater – reaching a point not seen since the global financial crisis of 2008. This offers diversification benefits along with opportunity for alpha.

    • JPMorgan

      The convergence between the US and international markets should continue next year, both on a dollar and local currency basis. The S&P 500 risk-reward relative to other regions remains unattractive. Continental European equities have a likely recession to negotiate and geopolitical tail risks, but the euro zone has never been this attractively priced versus the US. Japan should be relatively resilient due to solid corporate earnings from the economy’s reopening, attractive valuation and smaller inflation risk compared with other markets.

    • JPMorgan Asset Management

      Both stocks and bonds have pre-empted the macro troubles set to unfold in 2023 and look increasingly attractive, and we are more excited about bonds than we have been in over a decade.

    • JPMorgan Asset Management

      The broad-based sell-off in equity markets has left some stocks with strong earnings potential trading at very low valuations; we think there are opportunities in climate-related stocks and the emerging markets.

    • JPMorgan Asset Management

      We have higher conviction in cheaper stocks which have already priced in a lot of bad news and are offering dependable dividends.

    • JPMorgan Asset Management

      Looking forward, it is clear that the income on offer from bonds is now far more enticing. The global government bond benchmark has seen yields rise by roughly 200 basis points since the start of the year, while high-yield bonds are again worthy of such a title with yields approaching double digits. Valuations in inflation adjusted terms also look more attractive – while the roughly 1% real yield on global government bonds may not sound particularly exciting, it is back to the highest level since the financial crisis and around long-term averages.

    • JPMorgan Asset Management

      Our 2023 base case of positive returns for developed market equities rests on a key view: a moderate recession has already largely been priced into many stocks.

    • JPMorgan Asset Management

      While we are not calling the bottom for equity markets, we do think that the risk vs. reward for equities in 2023 has improved, given the declines in 2022. With quite a lot of bad news already factored in, we think that the potential for further downside is more limited than at the start of 2022. Importantly, the probability that stocks will be higher by the end of next year has increased sufficiently to make it our base case.

    • JPMorgan Asset Management

      Value stocks are now quite reasonably priced compared with history. We have stronger conviction that value stocks will be higher by the end of 2023 than we do for those growth stocks that still look expensive. However, a peak in government bond yields could provide some support to growth stock valuations in 2023.

    • JPMorgan Asset Management

      While falling earnings forecasts could lead stocks lower, if the magnitude of the decline in earnings is moderate – as we expect – then it would likely only lead to limited further downside for reasonably valued stocks, relative to the declines already seen in 2022.

    • JPMorgan Asset Management

      Even though we expect a challenging macroeconomic environment in 2023 and downward corporate earnings revisions, we think income stocks could have a good year with dividends proving more resilient than earnings. For investors that are tentatively looking to increase their equity exposure, an income tilt could prove relatively resilient in the worst case scenario, while also providing the potential for outperformance in our more optimistic scenario for markets given attractive valuations.

    • Macquarie Asset Management

      Bond yields rose considerably in 2022, offering attractive valuations and strong protection levels for investors in investment grade, high yield markets, and developed world sovereigns. However, in Macquarie Asset Management’s view, a defensive position is warranted given the potential for recessions and inflation to undermine the strong start to 2023.

    • Macquarie Asset Management

      The considerable rise in bond yields, to levels not seen in almost 15 years, offers attractive valuations and strong protection levels.

    • Macquarie Asset Management

      We retain a cautious outlook for high yield and emerging markets debt, with a mixed picture for underlying fundamentals alongside varied region-specific impacts from the global macroeconomic environment, although we anticipate increased allocations at what are increasingly attractive valuations.

    • Morgan Stanley

      European equities could offer a modest upside, with a forecasted 6.3% total return over 2023 as lower inflation nudges stock valuations higher.

    • Morgan Stanley

      Valuations are clearly cheap, and cyclical winds are shifting in favor of emerging markets as global inflation eases more quickly than expected, the Fed stops hiking rates and the dollar declines. The MSCI EM, an index of mid and large-cap companies in 24 emerging markets, could see 12% price returns in 2023. EM debt could benefit from a combination of trends. Fixed-income strategists forecast a 14.1% total return for emerging market credit, driven by a 5% excess return and a 9.1% contribution from falling Treasury yield.

    • NatWest

      Raging inflation could have a damaging impact on the financial condition of many leveraged corporations in the leveraged asset class. Bond and loan prices already reflect much of the stress that could have a material impact on credit metrics. Investors should be mindful of the inevitable interest rate pivot from central banks.

    • Neuberger Berman

      We think the next 12 months are likely to see this cycle’s peaks in global inflation, central bank policy tightening, core government bond yields and market volatility, as well as troughs in GDP growth, corporate earnings growth and global equity market valuations. But we do not believe this will mark a reversion to the post-2008 “new normal”. We see structural forces behind persistently higher inflation — and therefore a persistently higher neutral interest rate, a higher cost of capital and lower asset valuations.

    • Neuberger Berman

      Private markets won’t be impervious to the ongoing slowdown. Exits are more difficult in volatile public markets, and while private company valuations tend not to fall as far as public market valuations, we do think they are likely to decline. Such a challenging environment is likely to result in performance dispersion that tends to favor higher quality companies, especially where management has well-defined growth plans as opposed to relying on leverage and multiple expansion.

    • Northern Trust

      In equities, risks surrounding fundamentals are tilted to the downside given the extent of cumulative central bank tightening. Pockets of economic durability should limit a US earnings slowdown, while monetary policy offers a bit more support elsewhere. Keeping us equal-weight is the potential for sentiment upside. From beaten down levels, sentiment has runway to improve — particularly in Europe where the valuation discount is steep.

    • Northern Trust

      We are equal-weight inflation-linked bonds on the basis that central banks have the tools and perceived willingness to contain inflation, but that this is mostly reflected in valuations and the path back toward target levels may prove difficult.

    • Northern Trust

      We see upside to commodities given under-investment creating supply/demand imbalances, as well as increased demand from a China reopening and ongoing Russia disruption. Natural resources companies show much improved fundamentals to help better weather economic headwinds, while cheap valuations already reflect at least a portion of these economic drags.

    • Northern Trust

      We are equal-weight both global real estate and listed infrastructure. Global real estate valuations make for a compelling long-term investment opportunity, but interest rate volatility keeps us at a strategic weighting for now. While we like listed infrastructure as a risk asset that can also provide downside protection, we see better risk-reward elsewhere.

    • Nuveen

      Geographically, we prefer US stocks (especially large caps) relative to other markets, as they offer better opportunities for both defensive positioning and growth. Across market sectors, we like healthcare as a relatively stable area and see opportunities in REITs, which offer a combination of solid fundamentals and attractive valuations. We also think the materials sector should benefit from easing inflation and energy should hold up well. We’re less favorable toward higher growth areas, including technology and communications services that are likely to struggle amid a “higher for longer” interest rate environment.

    • Nuveen

      We favor higher quality areas of the fixed-income market as well as diversified and flexible core plus mandates that can identify select higher-income investments. We’re also quite favorable toward preferred securities: The issuer base is in great fundamental shape and the sector is attractively valued.

    • Pictet Asset Management

      We see the return to global equities limited to some 5% for the coming year, barely above the 3% we forecast for global government bonds. US equities are set to show the best performance. This is thanks to relatively attractive valuations, resilient domestic growth and the fact that the Fed is set to be the first of its peers to reach the end of its hiking cycle.

    • Robeco

      Comparing high yield valuations with those of equities, high yield looks more attractive at this stage. We expect an earnings recession to gain traction as we enter 2023: earnings per share could drop 20-30%. This is not yet fully recognized by the equity market.

    • Robeco

      Emerging-market equities typically outperform once a dollar bear market enters the scene. Emerging markets are attractively valued versus their developed counterparts. In addition, the downturn in the earnings cycle in emerging markets is already more mature than developed market equities.

    • Schroders

      Recession may not necessarily be bad for all markets since financial markets tend to be forward-looking and are likely to have already priced in much of the negative impact.

    • Societe Generale

      Asia is at the end of the earnings downgrade cycle, making cheap Asian assets look attractive.

    • State Street

      Non-US equities now trade at 12.17 times next year’s earnings, 20% below their historical median average of 14.94. The same is true under a shorter horizon, as US stocks trade on par and at 7% above their five- and 15-year median levels. Meanwhile, non-US stocks trade 11% and 12% below their five- and-15-year median levels, respectively.

    • State Street

      While risk is still likely to be elevated in the near term, if a policy pivot turns market pessimism to optimism and risk aversion declines, our view is that segments with decent fundamentals and attractive valuations may enter a repair phase more quickly than expensive areas. Domestically oriented US small caps represent one of these possibilities.

    • T. Rowe Price

      US equities remain expensive on a relative basis. However, the US economy appears to be on a stronger footing than the rest of the world, and its less cyclical nature could provide support as global growth weakens.

    • T. Rowe Price

      Cheaper valuations reflect the current challenges from high inflation, recession risks, and an energy crisis in Europe. An easing of these headwinds and continued fiscal support could provide upside over the course of 2023. Valuations are compelling, but high energy costs and weakening manufacturing activity make a European recession likely. We expect the ECB’s resolve on fighting inflation to ease as economic growth wanes in 2023.

    • T. Rowe Price

      Valuations and currencies are attractive in many emerging markets. Central bank tightening may have peaked. The path in 2023 is likely to remain uneven, but an easing of China’s zero‑Covid policies could be a significant tailwind.

    • TD Securities

      Weaker growth and higher policy rates for most emerging-market economies. Valuations and positioning suggest some value for EM investors, but worsening external metrics increase vulnerability.

    • Truist Wealth

      The equity market’s reset is a positive for longer-term returns. However, the near-term risk/reward remains unfavorable given elevated recession risk, uncompelling valuations, and downside earnings risk.Our shorter-term, tactical outlook leads us to remain defensive heading into 2023.

    • Truist Wealth

      Within equities, we retain a US bias. Overseas markets remain cheap on a relative basis, but valuation is a condition not a catalyst. Given the weak global economic backdrop we expect next year, the US economy should remain a relative outperformer, and while the upward momentum in the US dollar is likely to slow, it should remain relatively strong.

    • Truist Wealth

      After more than a decade of underperformance, value’s relative price trends have improved. We expect this to continue. Even with this year’s decline, growth valuations are still expensive. For example, technology shares are trading at a 25% premium to the overall market.

    • UBS

      The negative payoff from getting our disinflation call wrong is large. The sweetest spot for market valuations (high), volatility (low) and bond equity correlations (negative) has been when core inflation was around the third decile of its 50-year distribution, an average rate of 1.8% year-on-year. That is roughly where we expect it to land in 2024. If we’re wrong, and it lands, say, at the sixth decile (about 2.8%), the valuation adjustment needed (CAPE from 28 currently to sub-20) would see the S&P 500 at 2,550. Few places to hide then, but dollar assets, particularly the US Value trade, should do least worst.

    • UBS Asset Management

      Financials and energy are our preferred sectors. This is because we believe cyclically-oriented positions should perform if what appears to be overstated pessimism on global growth fades in the face of resilient economic data. Activity surprising to the upside and a higher-for-longer rate outlook should benefit value stocks relative to growth, in our view – particularly as profit estimates for inexpensive companies are holding up well relative to their pricier peers.

    • UniCredit

      2023 is set to inherit non-trivial economic and market risks and we suggest entering the year with a defensive allocation, preferring fixed income to equities and developed to emerging market exposure. Bonds offer attractive carry and superior risk-adjusted return prospects, in our view, while equities will face weak profitability and initially little tailwind from valuations. We like investment-grade and high-yield credit in Europe and retain a cautious view on duration.

    • UniCredit

      Following a volatile sideways movement early in the year, equities have potential to rise by about 10% in 2023, primarily supported by valuation expansion. Earnings growth should be flat and is unlikely to accelerate before 2024. Our 2023 year-end index targets are Euro Stoxx 50 at 4,200, the DAX at 15,500 and the S&P 500 at 4,300.

    • Vanguard

      In credit, valuations are fair, but the growing likelihood of recession and declining profit margins skew the risks toward higher spreads. Although credit exposure can add volatility, its higher expected return than US Treasuries and low correlation with equities validate its inclusion in portfolios.

    • Vanguard

      This year’s bear market has improved our outlook for global equities, though our model projections suggest there are greater opportunities outside the US. We now expect similar returns from US equities to those of non-US developed markets and view emerging markets as an important diversifier in equity portfolios.

    • Vanguard

      Within the US market, value stocks are fairly valued relative to growth, and small-capitalization stocks are attractive despite our expectations for weaker near-term growth.

    • Wells Fargo Investment Institute

      We expect earnings to contract in 2023 as the recession leads to declining revenues and profit margins. Valuations should rebound in 2023 to lift equity markets by year-end as early cycle dynamics begin to take hold.

  20. WAR
    • Amundi Asset Management

      Long-term ESG themes will continue to benefit from the aftermath of the Covid-19 crisis and the Ukraine war. Investors should get exposure to energy transition and food security, as well as re-shoring trends provoked by geopolitics. Social themes will be back in focus, as the deteriorating labor market and inflation demand more attention to social factors.

    • AXA Investment Managers

      Outside of the US, markets have seen significant declines in price-earnings multiples. European markets, for example, would be well placed to rally should there be positive developments in Ukraine. Asia will benefit from a post “zero-Covid” recovery in China. Long term, however, the US valuation premium is not likely to be challenged given the dominance of US technology, a greater level of energy security and more positive demographics. In the near term though, some highly-priced parts of the US market remain vulnerable.

    • Bank of America

      Higher for longer oil prices. Russian sanctions, low oil inventories, China’s reopening, and an OPEC that’s willing to cut production in case demand weakens should keep energy prices high. Brent Crude is expected to average $100 per barrel over the course of 2023 and spike to $110 per barrel in the second half of the year.

    • BCA Research

      Inflation will come down rapidly as pandemic and war-induced dislocations fade, the mix of spending between goods and services normalizes, and the aggregate demand curve slides down the steep side of the aggregate supply curve in response to the lagged effects of tighter financial conditions.

    • Commonwealth Financial Network

      Going forward, it’s reasonable to believe the US dollar will remain strong. But an equally compelling argument could be made that its current strength will not be sustained throughout 2023. If the Fed cools down inflation and curbs interest rate increases, investors could see the dollar stabilize—or possibly weaken—against other currencies. Several wild cards need to be considered, including the ongoing war in Ukraine, elevated oil prices, and above-average inflationary readings for a prolonged period. Still, our current expectation is that the greenback will not cause as many headwinds for international equity allocations as it did in 2022.

    • Deutsche Bank

      The recession we have now been anticipating for nine months draws nearer. A downturn may already be under way in Germany and the euro area overall thanks to the energy shock stemming from the Russia-Ukraine war. Our expectation for a recession in the US by mid-2023 has strengthened on the back of developments since early last spring.

    • Deutsche Bank

      The pace of recovery in 2024 and beyond is likely to be moderate, not a strong bounce as has been seen in the past. Factors that are likely to weigh on global growth for some time to come include uncertainties relating to both the Russia-Ukraine conflict—including a lingering energy-related competitiveness shock in Europe—and the growing US-China strategic competition.

    • NatWest

      We are not optimistic for a swift end to the war in Ukraine and a return of Russian energy to global markets anytime soon. OPEC is setting itself up to be in price-defense mode throughout 2023, and US production may continue to underwhelm as investment adjusts to fears of weaker demand. In turn, the slowdown in global growth may not bring with it a speedy drop in global energy prices.

    • Ned Davis Research

      It’s highly likely that the European economy fell into recession in the fourth quarter of 2022 due to the energy shock brought by Russia’s war and tighter monetary policy. We forecast a 0% to 0.5% growth rate for the euro zone in 2023, as the recession continues into next year. We expect the recession to be mild. The outlook, however, is uncertain and is almost entirely driven by energy.

    • Northern Trust

      We see upside to commodities given under-investment creating supply/demand imbalances, as well as increased demand from a China reopening and ongoing Russia disruption. Natural resources companies show much improved fundamentals to help better weather economic headwinds, while cheap valuations already reflect at least a portion of these economic drags.

    • Societe Generale

      A premature end to Russia’s war on Ukraine is a possibility. European assets would benefit most, and although we are neutral on European equities (cheap cyclicals would soar in that scenario), we clearly give ourselves some protection through our increased euro exposure.

    • Truist Wealth

      Our base case calls for a US recession in 2023, even though economic growth in the US is expected to remain stronger relative to global peers. Europe is likely to see the deepest recession, with countries closer to Ukraine and Russia being hit especially hard.

    • UBS

      If inflation is meaningfully higher (100 basis points) than our forecast, global growth would be 50-70 basis points lower and policy rates 100 basis points higher (160 basis points in DM). A global housing downturn does more damage (110 basis points additional downside to growth). Rapid de-escalation of the Russia/Ukraine war would add about 0.5 percentage points to our global growth forecast.

    • UBS Asset Management

      In currencies, we believe we have moved from a strong, trending US dollar to more of a rangebound trade in USD. Our catalysts for a broad turn in the dollar are for the Fed to stop hiking interest rates, China’s zero-Covid-19 policy to end, and energy pressures in Europe stemming from Russia’s invasion of Ukraine to subside. None of these have fully happened yet, but all three appear to be getting closer. A more rangebound dollar coupled with a global economy that is still growing, but slowing, could provide a very positive backdrop for high carry, commodity-linked currencies. We prefer the Brazilian real and Mexican peso.

  21. CONSUMER
    • Bank of America

      The US consumer gets some relief on prices, but also becomes less willing to spend given the wealth effect and as labor markets worsen. Labor markets should finally ease in 2023 and the US unemployment rate should peak at 5.5% in the first quarter of 2024, hindering consumer spending.

  22. LIQUIDITY
    • Amundi Asset Management

      “Bonds are back” with a focus on high-quality credit, while paying attention to FX in a world of diverging policies, as well as to liquidity risks and corporate leverage.

    • Citi Global Wealth Investments

      In our view, 2023 will potentially be a great vintage for alternative investments. Higher interest rates have caused a repricing of private assets amid much higher borrowing costs. As such, specialist managers will be able to deploy capital into areas of distress and illiquidity.

    • Fidelity

      Rates should eventually plateau, but if inflation remains sticky above 2%, they are unlikely to reduce quickly even if banks take other measures to maintain liquidity and manage increasingly challenging debt piles.

    • Fidelity

      If the Fed continues to raise rates, an even stronger dollar could accelerate the onset of recession elsewhere. Conversely, a marked change in the dollar’s direction, potentially as its relative strength and confidence in monetary and fiscal policy making become an issue, could bring broad relief, and increase overall liquidity across challenged economies.

    • Fidelity

      We have repeatedly argued that the financial system cannot take positive real rates for any material length of time (due to high levels of debt) before financial stability becomes an issue. Given liquidity and assets are already under considerable pressure, the system could start to crack. There is a risk that if the Fed stays true to its current word and doesn’t stop until inflation is back near 2%, a “standard” recession could turn into something worse.

    • Neuberger Berman

      Despite the pace of policy adjustment and attendant market rate moves, outside the UK central banks have so far not had to intervene to maintain market liquidity—but an emergent policy conflict remains a tail risk for bond markets in 2023.

    • Robeco

      While the dollar bull market could prove to be more persistent as the Fed shows reluctance to pivot and as potential liquidity events trigger safe-haven flows towards the US, the dollar bull run will likely peak in 2023. This will be on the back of declining rate differentials between the US and the rest of the world, and a peak in US growth versus the rest of the world.

    • Schroders

      Supported by liquidity and growth, Hong Kong and mainland Chinese equities stand a good chance of outperforming its peers, especially emerging markets.

    • T. Rowe Price

      Stocks remain vulnerable amid tightening liquidity, slowing growth, and higher rates. However, these headwinds should peak and subsequently ease in the latter half of 2023, which may provide an opportunity to add to equity exposures.

    • T. Rowe Price

      Investors could face a third bear market stage: a liquidity shock, in which markets decline across the board as leveraged positions are unwound. While painful, such shocks also can create major buying opportunities.

    • Truist Wealth

      We anticipate a continuation of this year’s elevated rate volatility and strained liquidity conditions in 2023.

    • Wells Fargo Investment Institute

      Currently, we expect high-yield defaults to climb slightly in 2023 but only moving closer toward long-term averages. We prefer higher-quality issuers with stronger balance sheets and cash flows and with relatively better liquidity.

  23. RESHORING
    • Bank of America

      A strong labor market, ESG, US/China decoupling, and deglobalization/reshoring are expected to keep certain areas of capex strong, even in the event of a recession.

    • Fidelity

      We expect Chinese policymakers to continue to focus on reviving the economy, investing in longer-term areas such as green technologies and infrastructure. Any loosening of Covid restrictions will cause consumption to pick up. The deglobalization that has arisen from the pandemic and tensions with the US will take time to work its way through but is a theme that will grow.

    • Fidelity

      Inflation is likely to moderate, but we expect it will do so gradually. Indeed, structural trends such as decarbonisation, deglobalization, and the process of dealing with high debt levels are likely to keep up the inflationary pressure over the coming years.

    • Macquarie Asset Management

      Macquarie Asset Management remains cautious toward equities due to earnings risks and anticipates a decline in equity markets as the developed world endures recessionary conditions. The asset manager sees opportunities in playing key thematics, such as deglobalisation and onshoring, with construction and engineering firms, railroads, and consumer discretionary firms becoming the major beneficiaries.

    • Macquarie Asset Management

      US large-caps have been remarkably good performers in recent times, while as globalisation slows and onshoring becomes a major theme we think construction and engineering firms, railroads, and consumer discretionary-related companies will benefit.

    • T. Rowe Price

      Geopolitical tensions, decarbonization, and global supply chain restructuring are likely to catalyze capital spending in a variety of industries and countries. This should drive demand for raw materials and infrastructure.

  24. ENERGY
    • Amundi Asset Management

      In Europe, the energy shock, compounded by inflationary pressures related to the aftermath of the Covid crisis, remains the main dampener on growth. The ensuing cost-of-living crisis will drag Europe into recession this winter before a slow recovery. But that doesn’t mean inflation will abate.

    • Amundi Asset Management

      Long-term ESG themes will continue to benefit from the aftermath of the Covid-19 crisis and the Ukraine war. Investors should get exposure to energy transition and food security, as well as re-shoring trends provoked by geopolitics. Social themes will be back in focus, as the deteriorating labor market and inflation demand more attention to social factors.

    • Bank of America

      Higher for longer oil prices. Russian sanctions, low oil inventories, China’s reopening, and an OPEC that’s willing to cut production in case demand weakens should keep energy prices high. Brent Crude is expected to average $100 per barrel over the course of 2023 and spike to $110 per barrel in the second half of the year.

    • Barclays

      Inflation is unlikely to fall quickly in 2023, meaning that monetary policy will have to be restrictive, even with economies in recession. Europe’s energy crunch and US sanctions on China are sources of particular concern.

    • Barclays

      Despite dire predictions, energy shortages in Europe this winter appear to have been averted, due in large part to unusually mild weather and efforts to curb consumption. But the crisis is not over. Unless energy prices moderate significantly, gaps in industrial production and GDP could persist, damaging competitiveness.

    • BCA Research

      Relative to subdued expectations, growth will surprise to the upside in 2023, as the US averts a recession, Europe experiences a robust recovery following the energy crisis, and China dismantles its zero-Covid policies. Growth will weaken towards the end of 2023, with a mild recession probable in 2024

    • BlackRock Investment Institute

      In equities, we look to lean into sectoral opportunities from structural transitions – such as healthcare amid aging populations – as a way to add granularity even as we stay overall underweight. Among cyclicals, we prefer energy and financials. We see energy sector earnings easing from historically elevated levels yet holding up amid tight energy supply. Higher interest rates bode well for bank profitability. We like healthcare given appealing valuations and likely cashflow resilience during downturns.

    • BNP Paribas

      We expect the oil market to loosen between the second and fourth quarters of 2023 and have cut our price forecasts.

    • Brandywine Global Investment Management

      The most intense period of economic softness is likely to be in the first half of 2023, based on the weight of leading indicators. However, there are a range of factors that could limit downside recessionary forces, including: the recent plunge in energy prices, the rebound in the US auto sector, and what could turn out to be a rapid decline in inflation. The conditions for a credit crunch, commonly seen ahead of other US recessions, do not exist currently.

    • Carmignac

      In Europe, high energy costs are expected to affect corporate margins and household purchasing power, and thus trigger a recession over this quarter and next. The recession should be mild as high gas storages should prevent energy shortages. However, economic recovery from the second quarter onward is expected to be lackluster, with businesses reluctant to hire and invest due to continued uncertainty over energy supplies and financing costs.

    • Citi

      Short copper has been our recession trade in commodities. While the Chinese reopening is a risk to the trade, our metals strategist thinks that copper is unlikely to benefit enough, given that Chinese housing may stop falling, but will not rebound much, and given the US recession. We therefore stay negative. We stay neutral in energy and gold.

    • Citi Global Wealth Investments

      We need to get through a deeper recession in Europe as it struggles through a winter of energy scarcity and inflation. We also need to see a sustained economic recovery in China, whose prior regulatory policies and current Covid policies curtail domestic growth.

    • Comerica Wealth Management

      In 2023, we look for a resumption of US dollar strength and a renewed bid for oil as geopolitical tensions remain elevated. Commodities including copper and gold are unlikely to gain traction until the Fed’s tightening campaign abates.

    • Commonwealth Financial Network

      Going forward, it’s reasonable to believe the US dollar will remain strong. But an equally compelling argument could be made that its current strength will not be sustained throughout 2023. If the Fed cools down inflation and curbs interest rate increases, investors could see the dollar stabilize—or possibly weaken—against other currencies. Several wild cards need to be considered, including the ongoing war in Ukraine, elevated oil prices, and above-average inflationary readings for a prolonged period. Still, our current expectation is that the greenback will not cause as many headwinds for international equity allocations as it did in 2022.

    • Credit Suisse

      In early 2023, demand for cyclical commodities may be soft, while elevated pressure in energy markets should help speed up Europe’s energy transition. Pullbacks in carbon prices could offer opportunities in the medium term, and we think the backdrop for gold should improve as policy normalization nears its end.

    • Deutsche Bank

      The recession we have now been anticipating for nine months draws nearer. A downturn may already be under way in Germany and the euro area overall thanks to the energy shock stemming from the Russia-Ukraine war. Our expectation for a recession in the US by mid-2023 has strengthened on the back of developments since early last spring.

    • Deutsche Bank

      Supply constraints will keep oil prices elevated in the neighborhood of $100 per barrel until demand softens with the US downturn; then see these prices declining $20 by year end.

    • Deutsche Bank

      The current mix of aggressive central bank rate hiking to deal with elevated inflation, geopolitical uncertainty and elevated commodity prices, and impending recession in the euro area and US has been a toxic mix for emerging markets. We see this sector remaining under pressure well into 2023, but then beginning to trend more positive later in the year as inflation begins to recede and central bank policy begins to reverse both domestically and by the Fed.

    • Deutsche Bank

      The pace of recovery in 2024 and beyond is likely to be moderate, not a strong bounce as has been seen in the past. Factors that are likely to weigh on global growth for some time to come include uncertainties relating to both the Russia-Ukraine conflict—including a lingering energy-related competitiveness shock in Europe—and the growing US-China strategic competition.

    • DWS

      We do not expect a pronounced upswing across the board in equities. The selection of the right sectors and, within these, the most promising individual stocks is decisive. Particularly promising are selected stocks from the healthcare sector as well as companies from the industry sector whose business models are based on advancing energy efficiency.

    • Goldman Sachs

      The euro area and the UK are probably in recession, mainly because of the real income hit from surging energy bills. But we expect only a mild downturn as Europe has already managed to cut Russian gas imports without crushing activity and is likely to benefit from the same post-pandemic improvements that are helping avoid US recession. Given reduced risks of a deep downturn and persistent inflation, we now expect hikes through May with a 3% ECB peak.

    • JPMorgan

      Despite more pessimistic expectations for balances over the next few months, we find the underlying trends in the oil market supportive and expect global Brent benchmark price to average $90 per barrel in 2023 and $98 in 2024.

    • JPMorgan Asset Management

      Despite remaining above central bank targets, inflation should start to moderate as the economy slows, the labor market weakens, supply chain pressures continue to ease and Europe manages to diversify its energy supply.

    • Macquarie Asset Management

      Energy security will continue to be a dominant theme for the year ahead. Macquarie Asset Management anticipates that although Europe may have enough resources to see it through this winter through increased liquified natural gas imports and reliance on other fuel sources, the biggest challenge will occur in the coming year.

    • Morgan Stanley

      Oil will outperform gold and copper, with Brent crude, the global oil benchmark, ending 2023 at $110.

    • NatWest

      2023 is forecast to see significant falls in inflation as the energy shock unwinds, though we expect CPI to continue to overshoot targets in the US, euro area and UK. The energy unwind is a necessary, but not a sufficient, condition for inflation to return sustainably to target.

    • NatWest

      We are not optimistic for a swift end to the war in Ukraine and a return of Russian energy to global markets anytime soon. OPEC is setting itself up to be in price-defense mode throughout 2023, and US production may continue to underwhelm as investment adjusts to fears of weaker demand. In turn, the slowdown in global growth may not bring with it a speedy drop in global energy prices.

    • Ned Davis Research

      It’s highly likely that the European economy fell into recession in the fourth quarter of 2022 due to the energy shock brought by Russia’s war and tighter monetary policy. We forecast a 0% to 0.5% growth rate for the euro zone in 2023, as the recession continues into next year. We expect the recession to be mild. The outlook, however, is uncertain and is almost entirely driven by energy.

    • Nuveen

      Perhaps our highest-conviction collective view is our preference for infrastructure investments, particularly public infrastructure. Regulated utility revenue tends to be relatively decoupled from the economy and can experience growth from rising capital costs and policies related to energy transition and the Inflation Reduction Act.

    • T. Rowe Price

      Cheaper valuations reflect the current challenges from high inflation, recession risks, and an energy crisis in Europe. An easing of these headwinds and continued fiscal support could provide upside over the course of 2023. Valuations are compelling, but high energy costs and weakening manufacturing activity make a European recession likely. We expect the ECB’s resolve on fighting inflation to ease as economic growth wanes in 2023.

    • TD Securities

      Oil and gas prices remain sticky given geopolitics, supply decisions, and lack of investment. Base metals decline on the back of demand destruction. Gold likely trades lower on further real rate increases before rallying later in 2023.

    • UBS Asset Management

      China’s reopening should fuel a pick-up in domestic oil demand, offsetting some of the downward pressure on inflation from goods prices.

    • UBS Asset Management

      Securing sufficient access to energy is not a problem that will be solved at the end of this winter – and may grow more intense as Chinese demand increases if mobility restrictions are removed.

    • UBS Asset Management

      In currencies, we believe we have moved from a strong, trending US dollar to more of a rangebound trade in USD. Our catalysts for a broad turn in the dollar are for the Fed to stop hiking interest rates, China’s zero-Covid-19 policy to end, and energy pressures in Europe stemming from Russia’s invasion of Ukraine to subside. None of these have fully happened yet, but all three appear to be getting closer. A more rangebound dollar coupled with a global economy that is still growing, but slowing, could provide a very positive backdrop for high carry, commodity-linked currencies. We prefer the Brazilian real and Mexican peso.

    • UniCredit

      Greeniums are set to move sideways or richen moderately as strong demand for ESG assets outpaces new issuance. Policy initiatives and the transforming energy landscape will support interest in the asset class.

    • Wells Fargo

      The dollar will stay stubbornly strong through the first half of 2023. The market is too sanguine the European/UK energy situation – deeper-than-expected recessions in euro zone/UK vs. resilient US growth keeps upward pressure on the broad dollar. By mid-year we call for EURUSD to return to parity and GBPUSD to reach 1.11.

    • Wells Fargo

      The absence of Russia from the world’s oil and gas markets will continue to be felt in 2023 and beyond and make the risk of commodity-driven stagflation quite high.

    • Wells Fargo Investment Institute

      We expect commodities to perform well in 2023, especially energy-related commodities and equities and high-quality master limited partnerships. We expect real estate investment trusts to underperform equity markets but see some value in the Self-storage, Retail, and Data Centers sub-sectors.

  25. HEDGING
    • AXA Investment Managers

      If equities struggle with the growth environment, bonds can provide a hedge and an alternative to those investors putting a premium on income.

    • BCA Research

      Gold will remain a desirable hedge against a variety of geopolitical risks, as well as the risk of a second wave of inflation. We are neutral on gold going into 2023.

    • BlackRock Investment Institute

      We are underweight nominal long-term government bonds in each scenario in this new regime. This is our strongest conviction in any scenario. We think long-term government bonds won’t play their traditional role as portfolio diversifiers due to persistent inflation. And we see investors demanding higher compensation for holding them as central banks tighten monetary policy at a time of record debt levels.

    • Goldman Sachs

      We see potential for bonds to be less positively correlated with equities later in 2023 and provide more diversification benefits. But until central banks stop hiking and inflation normalizes further, they are unlikely to be a reliable buffer for risky assets.

    • HSBC Asset Management

      As stock and bond correlations turned positive this year, limiting the investment universe to traditional asset classes isn’t an option anymore. Indeed, some segments of alternatives will require more selectivity to reveal benefits, but the more defensive segments and true-uncorrelated asset classes such as natural capital or hedge funds can bring value to most asset allocations.

    • HSBC Asset Management

      Strategies like hedge funds – particularly global macro or CTAs – continue to look like attractive diversifiers for asset allocators.

    • JPMorgan Asset Management

      The potential for bonds to meaningfully support a portfolio in the most extreme negative scenarios – such as a much deeper recession than we envisage, or in the event of geopolitical tensions – is perhaps most important for multi-asset investors.

    • Macquarie Asset Management

      The considerable rise in bond yields, to levels not seen in almost 15 years, offers attractive valuations and strong protection levels.

    • Ned Davis Research

      Tightening cycles to end in the first half of 2023. We see opportunities building in bonds, spread product, and cash. Once again, bonds should provide an effective hedge against equity risks in balanced portfolios.

    • Neuberger Berman

      Among liquid alternatives, we think global macro and other trading-oriented hedged strategies can continue to find opportunity amid volatility. We anticipate increasing opportunities to provide niche capital solutions at attractive or even stressed yields as debt structures are reworked. And on the illiquid side, we think private equity secondaries has become a buyers’ market. Economic strains could also open up long-term value opportunities in inflation-sensitive real assets, in markets both liquid (certain commodities) and illiquid (real estate).

    • Pimco

      We see ample evidence that both the near- and long-term case for fixed income is strong today. Higher starting yields have increased long-term return potential, while higher-quality bonds should resume their role as a reliable diversifier against equities if a recession materializes.

    • Schroders

      Schroders expects a reversal in the performance of global currencies in 2023, where the US dollar may weaken. On the other hand, the Japanese yen may regain its strength, providing a hedge against the impact of a semiconductor downcycle on other Asian economies and currencies.

    • Societe Generale

      Systemic risks are a common feature after a round of policy tightening of this kind. Holding gold and the Swiss franc can help stabilize portfolio volatility, in our view.

    • UBS Asset Management

      We see commodities as attractive both on an outright basis and for the hedging role they serve in multi-asset portfolios. Already low inventories can continue to shrink in an environment of slowing growth so long as supply remains constrained – as is the case across most key commodity markets.

  26. DISINFLATION
    • BNP Paribas

      We see the first quarter of 2023 as a turning point for US and euro zone government bond markets due to peaks in both central-bank policy rates and net supply net of QE/QT. In terms of fundamentals, the global growth downturn and disinflation point to lower yields throughout 2023.

    • BNY Mellon Investment Management

      Within fixed income, we prefer developed market sovereigns on the back of the nascent disinflationary trend, real policy rates nearing positive territory, and several central banks downshifting the pace of rate hikes.

    • Brandywine Global Investment Management

      We are increasingly confident about the destination of bond markets in 2023, and that is toward a disinflationary environment. We are less certain about the path and timing of the journey. The bond math now works in favor of the asset class, meaning that the coupon return will become a more influential source of the total return for bonds.

    • Brandywine Global Investment Management

      In addition to the favorable technical developments for bonds in 2023, two potential disinflationary outcomes for the global economy also support fixed income, particularly if an investor’s time horizon is the entire year. We expect a job-killing recession is necessary to break inflation and get it close to central banks’ 2% target. That means there will be meaningful weakness in the labor market globally. Under this type of disinflationary bust, a typical recession, higher-quality sovereign bonds are the best returners.

    • Carmignac

      The disinflationary trend over the first part of the year should turn in favor of visible growth equities.

    • Deutsche Bank

      We see the risks still weighted toward more severe recessions being needed to get the disinflation job done successfully, and we assume the Fed and ECB will be up to the task if needed.

    • Robeco

      We think that the belief in central bankers’ ability to prevent cyclical downturn is flawed. Instead, we expect a hard landing. Risks are tilted to the downside for the 2023 consensus of US annual real GDP growth of 0.8%. As recessions tend to be highly disinflationary, we believe this will take the sting out of inflation.

    • Robeco

      When unemployment surges towards 5% and disinflation accelerates on the back of a NBER recession in the second half of 2023, the Fed (and other central banks) will start cutting. Therefore, we think the Fed policy rate will be below the 4.6% December 2023 level implied in the Fed funds futures curve.

    • UBS

      Stocks are pricing in only 41% and 80% probabilities of a recession in the US and Europe, respectively. Weak growth and earnings drag the market lower before a fall in rates helps it bottom at 3,200 in the second quarter and lifts it to 3,900 by the end of 2023. With revenues and margins under greater pressure, Eurostoxx is likely to do worse, bottoming in the second quarter at 330 & ending 2023 at 385. As a part of our top trades we lay out stock lists of disinflation beneficiaries. Quality and Growth are likely to perform better than Value.

    • UBS

      Given our expectations of sharper US disinflation and rapid Fed easing in 2023, we expect US 10-year yields will fall 150 basis points to end the year at 2.65%. Ten-year real yields retrace half of this year’s rise to end 2023 at 65bps. We expect 10-year Bunds and Gilts to underperform Treasuries as “single mandate” ECB and BOE stay on hold for longer. JGBs do little as the BOJ persists with YCC. Australia and Korea duration are our favored APAC picks.

    • UBS

      The strongest EM disinflation in 20 years should drive 10% to 12% returns in EM duration. EM equities should post similar returns (but later, and with lower Sharpe ratios) as a peaking Fed, China reopening and troughing semis cycle drive strong second-half returns. Currencies are the weakest link. We see EM Asia weakening further in the first half amid a weak trade backdrop, low carry and a need to rebuild depleted FX reserves.

    • UBS

      The negative payoff from getting our disinflation call wrong is large. The sweetest spot for market valuations (high), volatility (low) and bond equity correlations (negative) has been when core inflation was around the third decile of its 50-year distribution, an average rate of 1.8% year-on-year. That is roughly where we expect it to land in 2024. If we’re wrong, and it lands, say, at the sixth decile (about 2.8%), the valuation adjustment needed (CAPE from 28 currently to sub-20) would see the S&P 500 at 2,550. Few places to hide then, but dollar assets, particularly the US Value trade, should do least worst.

    • UBS

      We expect inflation to ease and therefore see the bond-equity correlation normalizing, but equity returns themselves should be modest. We calculate equity-bond allocations based on risk parity, active risk parity and simple mean variance approaches. The recommended equity-bond portfolio is much closer to 35-65 than 60-40.

  27. COVID
    • Amundi Asset Management

      Long-term ESG themes will continue to benefit from the aftermath of the Covid-19 crisis and the Ukraine war. Investors should get exposure to energy transition and food security, as well as re-shoring trends provoked by geopolitics. Social themes will be back in focus, as the deteriorating labor market and inflation demand more attention to social factors.

    • AXA Investment Managers

      Outside of the US, markets have seen significant declines in price-earnings multiples. European markets, for example, would be well placed to rally should there be positive developments in Ukraine. Asia will benefit from a post “zero-Covid” recovery in China. Long term, however, the US valuation premium is not likely to be challenged given the dominance of US technology, a greater level of energy security and more positive demographics. In the near term though, some highly-priced parts of the US market remain vulnerable.

    • Bank of America

      China’s gradual reopening is underway, with most curbs expected to be removed by the second half of the year. It could be bumpy until later in 2023.

    • Bank of America

      After a volatile start to 2023, emerging markets should produce strong returns. Once inflation and rates peak in the US and China reopens, the outlook for emerging markets should turn more favorable. China equities will likely strengthen due to a reversal in both zero-Covid and property tightening.

    • BCA Research

      Relative to subdued expectations, growth will surprise to the upside in 2023, as the US averts a recession, Europe experiences a robust recovery following the energy crisis, and China dismantles its zero-Covid policies. Growth will weaken towards the end of 2023, with a mild recession probable in 2024

    • BCA Research

      Inflation will come down rapidly as pandemic and war-induced dislocations fade, the mix of spending between goods and services normalizes, and the aggregate demand curve slides down the steep side of the aggregate supply curve in response to the lagged effects of tighter financial conditions.

    • BNY Mellon Investment Management

      China’s exit from Covid proves disorderly. Its stop-go approach to lockdowns damages confidence, dents policy efficacy, and results in economic stalling.

    • Citi Global Wealth Investments

      We need to get through a deeper recession in Europe as it struggles through a winter of energy scarcity and inflation. We also need to see a sustained economic recovery in China, whose prior regulatory policies and current Covid policies curtail domestic growth.

    • Fidelity

      We expect Chinese policymakers to continue to focus on reviving the economy, investing in longer-term areas such as green technologies and infrastructure. Any loosening of Covid restrictions will cause consumption to pick up. The deglobalization that has arisen from the pandemic and tensions with the US will take time to work its way through but is a theme that will grow.

    • Generali Investments

      We forecast a drop in global growth from 3.2% in 2022 to 2.1% in 2023. We expect barely positive US growth (0.3%), with even a mild contraction over the central quarters of 2023. We expect core CPI inflation to end 2023 slightly above 3% year-on-year. Europe is likely entering recession at the turn of the year, while the Covid policy relaxation in China, along with a better credit impulse, will support a mild recovery.

    • Goldman Sachs

      China is likely to grow slowly in the first half as a reopening initially triggers an increase in Covid cases that keeps caution high, but should accelerate sharply in the second half on a reopening boost. Our longer-run China view remains cautious because of the long slide in the property market as well as slower potential growth (reflecting weakness in both demographics and productivity).

    • JPMorgan

      At 2.9% in 2023, EM growth looks to remain well below its pre-pandemic trend, slowing modestly from 2022. EM excluding China is expected to slow to a below-trend 1.8% with wide regional divergences. In China, the full-year 2023 growth forecast is 4% year-over-year, where two quarters of below-trend growth are assumed as the economy loosens Covid restrictions.

    • NatWest

      We forecast a marked slowdown in global economic growth in 2023: 1.2% from 3.7% in 2022. Our projections are below market consensus and official forecasts (the latter typically do not show recessions—yet). The advanced economies are expected to endure a year of slowdown in 2023 with outright recessions in the US and UK and stagnation in the euro area – while China experiences a mild form of “economic long covid.”

    • Northern Trust

      The firm expects growth to continue to be constrained globally, with some regions arguably already in recession and others on the precipice. It also believes that China’s pandemic-to-endemic transition will continue to materially impact the outlook for global economic demand.

    • Pictet Asset Management

      We forecast global growth to slow to 1.7% in 2023, with stagnation in most developed economies and outright recession in Europe. China’s economy, on the other hand, is likely to re-accelerate as the government relaxes its zero-Covid policy. Overall, growth is likely to pick up again following the first quarter.

    • Principal Asset Management

      A full China reopening will not happen overnight. Yet a roadmap for an end to China’s stringent Covid measures, coupled with additional stimulus policies, should provide the catalyst for a strong rebound in Chinese economic activity and risk assets in 2023. Global commodity prices also stand to benefit from this development.

    • T. Rowe Price

      Valuations and currencies are attractive in many emerging markets. Central bank tightening may have peaked. The path in 2023 is likely to remain uneven, but an easing of China’s zero‑Covid policies could be a significant tailwind.

    • UBS Asset Management

      Our confidence that the bottom is in for China is fortified since these adjustments to Covid-19 policy are taking place in tandem with the most comprehensive support for the property sector to date. A rebounding China may provide a needed boost as developed economies slow, but will also likely lead to higher commodity prices. This too may make it difficult for the Fed and other central banks to back off too quickly.

    • UBS Asset Management

      In currencies, we believe we have moved from a strong, trending US dollar to more of a rangebound trade in USD. Our catalysts for a broad turn in the dollar are for the Fed to stop hiking interest rates, China’s zero-Covid-19 policy to end, and energy pressures in Europe stemming from Russia’s invasion of Ukraine to subside. None of these have fully happened yet, but all three appear to be getting closer. A more rangebound dollar coupled with a global economy that is still growing, but slowing, could provide a very positive backdrop for high carry, commodity-linked currencies. We prefer the Brazilian real and Mexican peso.

  28. STAGFLATION
    • Barclays

      The global economy looks set to enter a stagflationary phase: as Europe and the US contract, growth remains sluggish in China, but inflation fades only gradually. Bringing inflation back to target, while output sinks and employment rises, will test central banks’ resolve.

    • Citi

      Our quant corner finds macro-economic conditions in stagflationary territory and is bearish risky assets. Using our economic forecasts, next year could be brighter, as inflation is likely peaking and central bank hiking cycles more mature, setting the stage for overweights in credit and bonds.

    • HSBC Asset Management

      Value still makes sense as rates continue to rise, although this needs to be balanced against a deteriorating macro outlook and lower commodity prices. The coming switch in the macro story from stagflation toward recession should favor defensive and quality factors.

    • Wells Fargo

      Stagflation is the biggest macro risk, in our opinion, and central bank responses would be tough to predict. Some policymakers likely would opt to put their economies into the deep freeze so they could squelch inflation.

    • Wells Fargo

      The ECB and BOE have already shown more concern for slowing growth vs. high inflation, and seem more inclined to pivot away from inflation fighting in a stagflation scenario. In contrast, the Fed’s bar for pivoting seems higher. Private debt has been more contained in the US relative to its peers, but debt has still risen sharply over the last few decades.

    • Wells Fargo

      The absence of Russia from the world’s oil and gas markets will continue to be felt in 2023 and beyond and make the risk of commodity-driven stagflation quite high.

  29. UNEMPLOYMENT
    • Bank of America

      The US consumer gets some relief on prices, but also becomes less willing to spend given the wealth effect and as labor markets worsen. Labor markets should finally ease in 2023 and the US unemployment rate should peak at 5.5% in the first quarter of 2024, hindering consumer spending.

    • Barclays

      The global economy looks set to enter a stagflationary phase: as Europe and the US contract, growth remains sluggish in China, but inflation fades only gradually. Bringing inflation back to target, while output sinks and employment rises, will test central banks’ resolve.

    • Brandywine Global Investment Management

      In addition to the favorable technical developments for bonds in 2023, two potential disinflationary outcomes for the global economy also support fixed income, particularly if an investor’s time horizon is the entire year. We expect a job-killing recession is necessary to break inflation and get it close to central banks’ 2% target. That means there will be meaningful weakness in the labor market globally. Under this type of disinflationary bust, a typical recession, higher-quality sovereign bonds are the best returners.

    • Carmignac

      We expect the US economy to enter a recession later this year but with a much sharper and longer decline in activity than anticipated by the consensus. Faced with inflation, the Fed will have to create the conditions for a real recession with an unemployment rate well above 5%, compared with 3.5% today, which is not currently envisaged by the consensus

    • Citi Global Wealth Investments

      We need to get through a recession in the US that has not started yet. We believe that the Fed’s current and expected tightening will reduce nominal spending growth by more than half, raise US unemployment above 5% and cause a 10% decline in corporate earnings. The Fed will likely reduce the demand for labor sufficiently to slow services inflation just as high inventories are already curtailing goods inflation.

    • Deutsche Bank

      We read the Fed and ECB as being absolutely committed to bringing inflation back to desired levels within the next several years. Although the costs in doing so may be lower than in the past, it will not be possible to do so without at least moderate economic downturns in the US and Europe, and significant increases in unemployment.

    • Deutsche Bank

      We think the Fed and ECB will succeed in their missions as they stick to their guns in the face of what is likely to be withering public opposition as unemployment mounts. The moderate cost of doing so now will be much lower than failing to do so and having to deal with a more severely ingrained inflation problem down the road. Doing so now will also set the stage for a more sustainable economic and financial recovery into 2024.

    • Deutsche Bank

      Declines in aggregate demand and increases in unemployment will relieve upward pressure on wages and prices, enough we think to move inflation gradually back to desired levels by the end of 2024.

    • DWS

      The looming mild recession in the US and the euro zone will be very different from previous downturns. Thanks to the demographically driven labor market, which is robust even in a downturn, workers will keep their jobs – for the most part – household incomes will remain stable and consumers will continue to consume.

    • Goldman Sachs

      The US should narrowly avoid recession as core PCE inflation slows from 5% now to 3% in late 2023 with a 0.5 percentage point rise in the unemployment rate. To keep growth below potential amidst stronger real income growth, we now see the Fed hiking to a peak of 5-5.25%. We don’t expect cuts in 2023.

    • Invesco

      A global recession remains a significant possibility, with the potential for higher unemployment, defaults, and a deterioration of earnings. However, we believe that risk is still below 50%, based on our expectation that central banks pause tightening soon.

    • JPMorgan

      The good news is that central banks will likely be forced to pivot and signal cutting interest rates sometime next year, which should result in a sustained recovery of asset prices and subsequently the economy by the end of 2023. The bad news is that in order for that pivot to happen, we will need to see a combination of more economic weakness, an increase in unemployment, market volatility, decline in levels of risky assets and a fall in inflation.

    • Robeco

      When unemployment surges towards 5% and disinflation accelerates on the back of a NBER recession in the second half of 2023, the Fed (and other central banks) will start cutting. Therefore, we think the Fed policy rate will be below the 4.6% December 2023 level implied in the Fed funds futures curve.

    • Robeco

      The pace of rate hikes will slow as employment figures start to deteriorate. This will solidify the bull market for sovereign bonds and, after a dismal 2022, there will be better times ahead for the 60/40 portfolio.

    • UBS

      The economic weakness we forecast is widespread but it is not deep. It would be enough, however, to push unemployment 100 basis points higher in DM, and 200 basis points in the US (to 5.5%). Combined with inflation coming down rapidly in the coming quarters, that creates a much stronger central bank pivot than is priced by the market: about 200 basis points in DM cuts by mid-2024 (and nearly 400 basis points in the US).

    • Vanguard

      Growth is likely to end 2023 flat or slightly negative in most major economies outside of China. Unemployment is likely to rise over the year but nowhere near as high as during the 2008 and 2020 downturns. Through job losses and slowing consumer demand, a downtrend in inflation is likely to persist through 2023.

  30. ESG
    • Amundi Asset Management

      Long-term ESG themes will continue to benefit from the aftermath of the Covid-19 crisis and the Ukraine war. Investors should get exposure to energy transition and food security, as well as re-shoring trends provoked by geopolitics. Social themes will be back in focus, as the deteriorating labor market and inflation demand more attention to social factors.

    • Bank of America

      A strong labor market, ESG, US/China decoupling, and deglobalization/reshoring are expected to keep certain areas of capex strong, even in the event of a recession.

    • BNP Paribas

      Global green bond issuance will recover to 2021 levels in 2023, we think, thanks largely to Europe’s consistency and China’s rising issuance.

    • UniCredit

      Greeniums are set to move sideways or richen moderately as strong demand for ESG assets outpaces new issuance. Policy initiatives and the transforming energy landscape will support interest in the asset class.

  31. RISKS
    • Amundi Asset Management

      2023 will be a two-speed year, with plenty of risks to watch out for. Bonds are back, market valuations are more attractive, and a Fed pivot in the first part of the year should trigger interesting entry points.

    • BCA Research

      Gold will remain a desirable hedge against a variety of geopolitical risks, as well as the risk of a second wave of inflation. We are neutral on gold going into 2023.

    • BNY Mellon Investment Management

      Output is likely to fall in 2023, with risks to the downside. Inflation will probably fall too, but relatively slowly, remaining above target for some time, with risks to the upside. As a result, despite recession, interest rates are set to rise further, though with risks to the downside. All this stands in stark contrast to the “soft landing” narrative.

    • Citi Global Wealth Investments

      We believe that the Fed’s rate hikes and shrinking bond portfolio have been stringent enough to cause an economic contraction within 2023. And if the Fed does not pause rate hikes until it sees the contraction, a deeper recession may ensue.

    • Comerica Wealth Management

      Should global conditions worsen and a deeper recession, or hard landing ensues it’s conceivable that S&P 500 profits decline to the $200 range in 2023. In this scenario, we do not expect technical support to hold at 3,500 for the S&P 500. Instead, we view a more typical recession-like P/E multiple of 15x to result, therefore taking the Index down to the 3,000 range.

    • Credit Suisse

      With inflation likely to normalize in 2023, fixed-income assets should become more attractive to hold and offer renewed diversification benefits in portfolios. US curve “steepeners,” long-duration US government bonds (over euro zone government bonds), emerging-market hard currency debt, investment grade credit and crossovers should offer interesting opportunities in 2023. Risks for this asset class include a renewed phase of volatility in rates due to higher-than-expected inflation.

    • Deutsche Bank

      The pace of recovery in 2024 and beyond is likely to be moderate, not a strong bounce as has been seen in the past. Factors that are likely to weigh on global growth for some time to come include uncertainties relating to both the Russia-Ukraine conflict—including a lingering energy-related competitiveness shock in Europe—and the growing US-China strategic competition.

    • Deutsche Bank

      We see the risks still weighted toward more severe recessions being needed to get the disinflation job done successfully, and we assume the Fed and ECB will be up to the task if needed.

    • Fidelity

      We have repeatedly argued that the financial system cannot take positive real rates for any material length of time (due to high levels of debt) before financial stability becomes an issue. Given liquidity and assets are already under considerable pressure, the system could start to crack. There is a risk that if the Fed stays true to its current word and doesn’t stop until inflation is back near 2%, a “standard” recession could turn into something worse.

    • Generali Investments

      The start of 2023 is dominated by a global – if desynchronized – economic slowdown (cold) but still elevated inflation (hot). Our core scenario sees a mild euro-area recession, and an even milder US one. Risks are skewed to the downside: such brutal tightening of monetary policy and financial conditions rarely leaves the economy and markets unscathed.

    • Goldman Sachs

      In the near term, bonds could remain more of a source of risk than of safety: policy rates could end up going higher, and staying there longer, than investors are prepared for.

    • HSBC

      Financial markets are now pricing a goldilocks outcome which we consider very unrealistic. As such, we remain underweight global equities, global high-yield credit and developed-market sovereigns.

    • HSBC Asset Management

      For equities, we think price to earnings ratios in developed markets have scope to fall given where bond yields are. But the big risk remains corporate earnings downgrades, which will probably be a driver of weak equity market performance.

    • Invesco

      A global recession remains a significant possibility, with the potential for higher unemployment, defaults, and a deterioration of earnings. However, we believe that risk is still below 50%, based on our expectation that central banks pause tightening soon.

    • JPMorgan

      The convergence between the US and international markets should continue next year, both on a dollar and local currency basis. The S&P 500 risk-reward relative to other regions remains unattractive. Continental European equities have a likely recession to negotiate and geopolitical tail risks, but the euro zone has never been this attractively priced versus the US. Japan should be relatively resilient due to solid corporate earnings from the economy’s reopening, attractive valuation and smaller inflation risk compared with other markets.

    • NatWest

      In the US we see bullish steepening risks as markets price a dovish pivot in the second half. In Europe and the UK, we remain short duration due to heavy supply, quantitative tightening, region risk and weak demand themes. Bearish steepeners out to 10 years. In Japan we see a change of leadership at the BOJ creating flexibility in yield curve control.

    • Neuberger Berman

      Despite the pace of policy adjustment and attendant market rate moves, outside the UK central banks have so far not had to intervene to maintain market liquidity—but an emergent policy conflict remains a tail risk for bond markets in 2023.

    • Northern Trust

      Northern Trust expects 2023 to be a turbulent year as conditions pivot from inflation and monetary policy fears to a weak global economy, but the firm also expects market volatility to somewhat temper due to lower inflation and a pause in central bank interest rate increases. A reduction in rates is not seen as likely. We see downside risk from lower corporate profits and revenues, but with upside potential from better sentiment.

    • Northern Trust

      In equities, risks surrounding fundamentals are tilted to the downside given the extent of cumulative central bank tightening. Pockets of economic durability should limit a US earnings slowdown, while monetary policy offers a bit more support elsewhere. Keeping us equal-weight is the potential for sentiment upside. From beaten down levels, sentiment has runway to improve — particularly in Europe where the valuation discount is steep.

    • Nuveen

      We should continue to see pockets of strength across global equity markets on specific catalysts such as perceived dovish messaging from central banks or even a moderation of rate hikes, but the risks surrounding earnings, employment and contractionary manufacturing data lead us to believe we’re not yet out of the equity bear market.

    • Robeco

      We think that the belief in central bankers’ ability to prevent cyclical downturn is flawed. Instead, we expect a hard landing. Risks are tilted to the downside for the 2023 consensus of US annual real GDP growth of 0.8%. As recessions tend to be highly disinflationary, we believe this will take the sting out of inflation.

    • Robeco

      For the euro zone, the consensus of 0.4% real GDP growth in 2023 is fairly consistent with leading indicators like decelerating broad money growth in the region. But we flag the risk of excess tightening by the ECB, especially to get imported inflation under control.

    • Societe Generale

      2023 should be a year during which the real economy finally deteriorates into a (mild) recession, monetary conditions gradually stop tightening, while systemic risk grows.

    • Societe Generale

      Systemic risks are a common feature after a round of policy tightening of this kind. Holding gold and the Swiss franc can help stabilize portfolio volatility, in our view.

    • State Street

      While risk is still likely to be elevated in the near term, if a policy pivot turns market pessimism to optimism and risk aversion declines, our view is that segments with decent fundamentals and attractive valuations may enter a repair phase more quickly than expensive areas. Domestically oriented US small caps represent one of these possibilities.

    • T. Rowe Price

      The global economy has passed from decades of declining interest rates into a new regime marked by persistent inflationary pressures and higher rates. Regime change clearly presents risks. But markets may have overreacted to some of those risks in 2022, creating attractive potential opportunities for investors willing to be selectively contrarian.

    • T. Rowe Price

      Investors could face a third bear market stage: a liquidity shock, in which markets decline across the board as leveraged positions are unwound. While painful, such shocks also can create major buying opportunities.

    • Truist Wealth

      The equity market’s reset is a positive for longer-term returns. However, the near-term risk/reward remains unfavorable given elevated recession risk, uncompelling valuations, and downside earnings risk.Our shorter-term, tactical outlook leads us to remain defensive heading into 2023.

    • Truist Wealth

      Historically, earnings around recessions have averaged a drop of almost 20%. We don’t necessarily believe that earnings have to fall that far given how well corporations have navigated the pandemic and the fact that elevated inflation raises nominal sales figures, but there remains downside risk.

    • Truist Wealth

      US credit spreads should widen as the year progresses and the impact of the Fed’s aggressive policy tightening begins to emerge more fully. Areas like leveraged loans, high-yield corporates, and emerging-markets bond will likely see meaningful underperformance as economic risks rise.

    • UBS

      The negative payoff from getting our disinflation call wrong is large. The sweetest spot for market valuations (high), volatility (low) and bond equity correlations (negative) has been when core inflation was around the third decile of its 50-year distribution, an average rate of 1.8% year-on-year. That is roughly where we expect it to land in 2024. If we’re wrong, and it lands, say, at the sixth decile (about 2.8%), the valuation adjustment needed (CAPE from 28 currently to sub-20) would see the S&P 500 at 2,550. Few places to hide then, but dollar assets, particularly the US Value trade, should do least worst.

    • UBS

      If inflation is meaningfully higher (100 basis points) than our forecast, global growth would be 50-70 basis points lower and policy rates 100 basis points higher (160 basis points in DM). A global housing downturn does more damage (110 basis points additional downside to growth). Rapid de-escalation of the Russia/Ukraine war would add about 0.5 percentage points to our global growth forecast.

    • UniCredit

      We forecast a mild technical recession in both the US and the euro zone, followed by a below-trend recovery. The risks to growth are skewed to the downside, including from negative geopolitical developments, greater persistence in wage and price setting, and financial stability risks.

    • UniCredit

      2023 is set to inherit non-trivial economic and market risks and we suggest entering the year with a defensive allocation, preferring fixed income to equities and developed to emerging market exposure. Bonds offer attractive carry and superior risk-adjusted return prospects, in our view, while equities will face weak profitability and initially little tailwind from valuations. We like investment-grade and high-yield credit in Europe and retain a cautious view on duration.

    • UniCredit

      The ongoing sharp monetary tightening and upcoming recession pose significant downside risks. However, evidence of slowing core inflation, peaking official rates and signs of economic recovery would pave the way for more risk taking in the second half.

    • Wells Fargo

      Stagflation is the biggest macro risk, in our opinion, and central bank responses would be tough to predict. Some policymakers likely would opt to put their economies into the deep freeze so they could squelch inflation.

    • Wells Fargo

      Relative growth outlook supports dollar gains. Growth expectations for 2022/23 have mostly moved against the dollar this year. Wells Fargo Economics is much further below consensus on growth in the UK and euro zone than the US. China reopening is a key risk to our view.

    • Wells Fargo

      Massive private debt overhang in many G10 economies could cause earlier/faster rate cuts. Risks appear to be largest in Sweden and Canada, both of which have seen a huge jump in corporate and household debt/GDP over the past decade

    • Wells Fargo

      The absence of Russia from the world’s oil and gas markets will continue to be felt in 2023 and beyond and make the risk of commodity-driven stagflation quite high.

  32. VALUTATIONS
    • Robeco

      Equity valuations have not yet hit rock bottom. In addition, the next recession could prove to be less mild than currently priced in by, for instance, high yield option-adjusted spreads.

    • Schroders

      Schroders expects 2023 to usher in a turning point for global equities after the sharp corrections seen year-to-date this year. Valuations are now at more attractive levels where investors may look to quality companies across markets for opportunities when the time is ripe, subject to recessionary risks and currently over-optimistic expectations on corporate earnings.

  33. INTEREST RATES
    • Barclays

      This year’s aggressive rate hikes should hit the world economy mainly in 2023. We expect advanced economies to slip into recession, and we forecast global growth at just 1.7%, one of the weakest years for the world economy in 40 years. We recommend bonds over stocks, as well as a healthy allocation to cash.

    • Barclays

      We recommend bonds over stocks; equities are likely to bottom out only in the first half next year. The Fed funds rate is headed over 4.5%, so cash is a low-risk alternative that should drag on financial market valuations.

    • NatWest

      Whilst there are some tentative hints that policymakers are becoming less hawkish, we do not expect any policy “pivot” (i.e. rate cuts) in 2023. The scale and persistence of the inflation overshoot in 2022 is likely to have resulted in reaction functions becoming more reactive for policy easing. Policy rate cuts in the US, euro area and UK are not expected until 2024.

    • UBS

      For the US, we now expect near zero growth in both 2023 and 2024 (roughly 1 percentage point below consensus), and a recession to start in 2023. Combined with inflation falling rapidly (50 basis points below consensus), the Fed would cut the Federal Funds rate down to 1.25% by early 2024. The speed of that pivot will drive every asset class next year.

  34. WAGES
    • BNY Mellon Investment Management

      Inflation stays persistent in advanced economies – brought on by a wage-price spiral in the US and prolonged upstream price pressure in Europe. Fed responds hawkishly, with the ECB not far behind. Tightening financial conditions and erosion of real incomes results in a sizable downturn in Europe in the first half, with US following a quarter or two later.

  35. CONSUMERS
    • Commonwealth Financial Network

      Our outlook for 2023 remains uncertain and will hinge on whether the Fed is able to rein in inflation while keeping us out of recession. But because the labor market continues to show strength, lending support to the consumer sector—the largest part of the economy—we are cautiously optimistic that the economy and markets will move in a positive direction in the new year, though there may be some bumps along the way.

    • Commonwealth Financial Network

      Industry analysts currently expect S&P 500 earnings growth to be in the high single digits by the end of the year, with 2023 growth in the 5% range. We believe these expectations are reasonable, especially if the labor market and consumer spending remain healthy and inflation weakens.

    • DWS

      The looming mild recession in the US and the euro zone will be very different from previous downturns. Thanks to the demographically driven labor market, which is robust even in a downturn, workers will keep their jobs – for the most part – household incomes will remain stable and consumers will continue to consume.

    • Generali Investments

      We see the Fed peak at 5% in March, but the risks lie towards the Fed hiking more as consumer demand and capex initially prove resilient. We do not see Fed rate cuts before the fourth quarter, i.e. not as fast as the implied curve is suggesting.

    • UBS Asset Management

      While a recession is a very real possibility, investors may be surprised by the resilience of the global economy – even with such a sharp tightening in financial conditions. The labor market will certainly cool, but healthy household balance sheets should continue to support spending in the services sector. Moreover, some of the major drags on the world economy emanating from Europe and China are poised to get better, not worse, between now and the end of the first quarter of 2023.

    • Vanguard

      Growth is likely to end 2023 flat or slightly negative in most major economies outside of China. Unemployment is likely to rise over the year but nowhere near as high as during the 2008 and 2020 downturns. Through job losses and slowing consumer demand, a downtrend in inflation is likely to persist through 2023.

  36. MONETARY POLICY
    • T. Rowe Price

      Stocks remain vulnerable amid tightening liquidity, slowing growth, and higher rates. However, these headwinds should peak and subsequently ease in the latter half of 2023, which may provide an opportunity to add to equity exposures.

  37. RATES
    • UBS

      Stocks are pricing in only 41% and 80% probabilities of a recession in the US and Europe, respectively. Weak growth and earnings drag the market lower before a fall in rates helps it bottom at 3,200 in the second quarter and lifts it to 3,900 by the end of 2023. With revenues and margins under greater pressure, Eurostoxx is likely to do worse, bottoming in the second quarter at 330 & ending 2023 at 385. As a part of our top trades we lay out stock lists of disinflation beneficiaries. Quality and Growth are likely to perform better than Value.

See outlooks for previous years: 2022