Wall Street Predictions For 2023 Global Recession, Bond Surge, Dollar Drop

Wall Street Predictions for 2023: Global Recession, Bond Surge, Dollar Drop https://www.bloomberg.com/graphics/2023-investment-outlooks/?srnd...
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Here’s (Almost) Everything Wall Street

Expects in 2023
By Sam Potter for Bloomberg Markets
January 3, 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.
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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.
All Institutions ▼
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BASE CASE
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Amundi Asset Management AXA Investment Managers

2023 will be a two-speed year, with plenty of risks to watch out for. A policy-induced recession looks like the price to pay to get inflation
Bonds are back, market valuations are more attractive, and a Fed pivot back under control after a peak in late 2022. While we are confident
in the first part of the year should trigger interesting entry points. 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 Barclays

Going into 2023, one expected shock remains: recession. The US, euro This year’s aggressive rate hikes should hit the world economy mainly in
area and UK are all expected to see recessions next year, and the rest 2023. We expect advanced economies to slip into recession, and we
of the world should continue to weaken, with China a notable exception. forecast global growth at just 1.7%, one of the weakest years for the
The recession shock likely means corporate earnings and economic world economy in 40 years. We recommend bonds over stocks, as well
growth will come under pressure in the first half of the year, while at the as a healthy allocation to cash.
same time, China’s reopening offers a reprieve for certain assets.
BCA Research BlackRock Investment Institute

Relative to subdued expectations, growth will surprise to the upside in The new regime of greater macro and market volatility is playing out. A
2023, as the US averts a recession, Europe experiences a robust recession is foretold; central banks are on course to overtighten policy
recovery following the energy crisis, and China dismantles its zero- as they seek to tame inflation. This keeps us tactically underweight
Covid policies. Growth will weaken towards the end of 2023, with a mild developed market equities. We expect to turn more positive on risk
recession probable in 2024 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 BNY Mellon Investment Management

We expect a downturn in global GDP growth in 2023, led by recessions With Europe and the UK in or approaching recession, China slowing
in both the US and the euro zone, with below-trend growth in China and sharply and the US “needing” one to bring inflation back to target, it is
many emerging markets. 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 Citi
2023 will be a year of global recession, but investment opportunities will We are currently at a spot in the US business cycle where fears of
arise from the continued desynchronization between the three largest inflation and the Fed are fading, but fears of a recession are not yet
economic blocs – the US, the euro area and China. 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 Columbia Threadneedle

We expect global growth will deteriorate for some of 2023. Markets will Investors should not expect everything to go “back to normal” in 2023.
then increasingly focus on the recovery that lies beyond. We enter the Higher inflation and a weaker economic environment will mean not all
year defensively positioned but expect to pivot as a sequence of companies will thrive.
potential opportunities unfolds.
Comerica Wealth Management Commonwealth Financial Network

In 2023, we envision an environment of moderating but persistent price Our outlook for 2023 remains uncertain and will hinge on whether the
pressures that will keep monetary policymakers on a steady, but less Fed is able to rein in inflation while keeping us out of recession. But
aggressive, tightening path. Our base case calls for mild recession early because the labor market continues to show strength, lending support
in the year and steady market interest rates. 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 Deutsche Bank

We expect the euro zone and UK to have slipped into recession, while The recession we have now been anticipating for nine months draws
China is in a growth recession. These economies should bottom out by nearer. A downturn may already be under way in Germany and the euro
mid-2023 and begin a weak, tentative recovery – a scenario that rests area overall thanks to the energy shock stemming from the Russia-
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on the crucial assumption that the US manages to avoid a recession. Ukraine war. Our expectation for a recession in the US by mid-2023 has
Economic growth will generally remain low in 2023 against the strengthened on the back of developments since early last spring.
backdrop of tight monetary conditions and the ongoing reset of
geopolitics.
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 Franklin Templeton

Markets want to believe that central banks will blink and change Our base case is inflation will further recede as supply chain pressures
direction, negotiating the economy towards a soft landing. But in our ease and central banks will remain committed to tighter policy. However,
view, a hard landing remains the most likely outcome in 2023. A the result of this policy is likely to be a slowing of the economy.
recession is likely in the US and near certain in Europe and the UK.
Generali Investments Goldman Sachs

The start of 2023 is dominated by a global – if desynchronized – We expect global growth of just 1.8% in 2023, as US resilience
economic slowdown (cold) but still elevated inflation (hot). Our core contrasts with a European recession and a bumpy reopening in China.
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.
HSBC HSBC Asset Management

We think markets have become too complacent both in regard to the Our “house view” continues to reflect an overall cautious stance. We do
inflation and Fed outlook and the growth outlook. Virtually all of our not advocate an aggressive use of risk budgets. 2023 is going to be a
cyclical leading indicators are still pointing to much more weakness on year about the macro cycle. We have likely reached peak central bank
the growth side in the coming two to three quarters. The point here is hawkishness as the headline inflation rates begin to cool and given the
that these signals are no longer confined to just one particular area of extent of tightening so far. Economies are in different situations or
the economy. The weakness is much more broad-based now, which “parallel worlds,” which should create some relative-value opportunities
gives us even higher conviction in our call. We remain decidedly risk-off for global investors in 2023.
for the first half of 2023.
JPMorgan JPMorgan Asset Management

The good news is that central banks will likely be forced to pivot and Our core scenario sees developed economies falling into a mild
signal cutting interest rates sometime next year, which should result in a recession in 2023.
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.
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 NatWest

In an environment of slow growth, lower inflation and new monetary We forecast a marked slowdown in global economic growth in 2023:
policies, expect 2023 to have upside for bonds, defensive stocks and 1.2% from 3.7% in 2022. Our projections are below market consensus
emerging markets. 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 Neuberger Berman

We estimate 2.4% real global GDP growth in 2023 and assign a 65% We think the next 12 months are likely to see this cycle’s peaks in global
chance of severe global recession. Recession in developed economies inflation, central bank policy tightening, core government bond yields
and a Chinese reopening present offsetting risks. Global inflation has and market volatility, as well as troughs in GDP growth, corporate
4 of 115 09/01/2023, 10:00 a.m.

peaked but will stay higher for longer. 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 Nuveen

Northern Trust expects 2023 to be a turbulent year as conditions pivot We expect the all-too-familiar headwinds of 2022 (persistent inflation,
from inflation and monetary policy fears to a weak global economy, but rising yields, hawkish central banks and a rocky geopolitical landscape)
the firm also expects market volatility to somewhat temper due to lower to drive volatility and uncertainty through the start of next year.
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 Pimco

Dollar weakness. Slower growth. A big drop in inflation. Muted equities. As we navigate a period of elevated inflation and an economic
Bullish bonds. And a China rebound. All of this spells out the need for slowdown, our starting point is one of caution. Pimco’s business cycle
investors to remain cautious on risk assets – particularly through the models forecast a recession across Europe, the UK, and the US in the
first half of the year. 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 Schroders
In our base case, 2023 will be a recession year that – once the three The overall market outlook for 2023 will largely depend on the direction
peaks in inflation, rates and the dollar have been reached – will of US Fed monetary policy, which the firm sees pivoting, and whether or
ultimately contribute to a considerable brightening of the return outlook not a global recession would become a reality, which the team
for major asset classes. But we first need to brace for more pain in the considers likely.
short term.
Societe Generale State Street

2023 should be a year during which the real economy finally The Fed can’t hike rates forever. Eventually earnings cynicism will find a
deteriorates into a (mild) recession, monetary conditions gradually stop bottom and optimism will be repriced. In the meantime, positioning
tightening, while systemic risk grows. portfolios for the fundamental weakness washing over the world, while
acknowledging the potential for future positivity, takes combining
offense with defense.
T. Rowe Price TD Securities

The global economy has passed from decades of declining interest 2023 will see a balancing act from central banks, as they maintain
rates into a new regime marked by persistent inflationary pressures and restrictive policy to bring inflation down against a backdrop of
higher rates. Regime change clearly presents risks. But markets may recessions across most of the G-10. Inflation remains above target all
have overreacted to some of those risks in 2022, creating attractive year, and we anticipate a global recession.
potential opportunities for investors willing to be selectively contrarian.
Truist Wealth UBS

We expect next year will be the worst year for global growth since the We forecast a historically weak outlook: global growth of just 2.1% year-
1980s, aside from the global financial crisis and Covid years. Many on-year in 2023 would be the lowest since 1993 excluding the pandemic
countries are set to experience recessionary pressures as the and GFC. With 13 out of 32 economies expected to contract for at least
supersized rate hikes of the past year start to take stronger hold. 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.
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UniCredit Vanguard
We forecast a mild technical recession in both the US and the euro Our base case is a global recession in 2023 brought about by the
zone, followed by a below-trend recovery. The risks to growth are efforts to reduce inflation.
skewed to the downside, including from negative geopolitical
developments, greater persistence in wage and price setting, and
financial stability risks.
Wells Fargo Wells Fargo Investment Institute

Our base case scenario is for the Federal Reserve to deliver a bit more We expect a U.S. recession in the first half of 2023, as well as a
tightening than what the market is pricing. Meanwhile, we expect the continued global economic slowdown, as last year’s hawkish monetary
Bank of England and European Central Bank to not hike as much as policy and money growth slowdown works with a lag. That should drive
implied by the market. Inflation falls fairly quickly in the US, and but down corporate earnings growth and create important inflection points
drops even faster in several other large economies. US core CPI drops for investors over the next nine to 12 months.
below 3% annualized, but with a wide confidence interval around this
forecast.
GROWTH
Amundi Asset Management Amundi Asset Management

Amundi expects global growth to slow next year to 2.2%, down from In Europe, the energy shock, compounded by inflationary pressures
3.4% in 2022, with several developed and emerging countries suffering related to the aftermath of the Covid crisis, remains the main dampener
stagnation. 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.

This low growth-high inflation environment will spread to emerging Given decelerating global growth and a profit recession in the first half
markets, with China the exception. Amundi has cut China’s GDP of 2023, investors should remain defensive for now with gold and
forecast to 4.5% from 5.2%. That’s a lot better than China’s anemic investment-grade credit the favored asset classes. However, they
growth levels of 2022 (3.2%) and is based on hopes of a stabilization in should be ready to adjust through the year to exploit market
the housing market and a gradual re-opening of the economy. opportunities that will emerge, as valuations get more attractive.
Headwinds should subside in the second half of 2023.
AXA Investment Managers AXA Investment Managers

A policy-induced recession looks like the price to pay to get inflation We expect inflation to fall back towards target over the coming two
back under control after a peak in late 2022. While we are confident years as global growth slows, with recessions forecast in both Europe
that by the middle of 2023 the world economy will start improving again, and the US.

The Fed won’t want to cut rates as quickly as the market is currently We expect euro zone GDP to contract by 1% between the fourth quarter
pricing (second half of 2023) since they will want to be satisfied that of 2022 and the first quarter of 2023, followed by a weak recovery. We
they have properly broken the back of inflation. The price to pay for this expect the UK economy to enter recession this year and forecast GDP
will be a recession in the first three quarters of 2023 in the US which growth to average 4.3% in 2022, -0.7% in 2023 and 0.8% in 2024.
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

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 Bank of America

Domestic and external headwinds will trigger a marked slowdown in Going into 2023, one expected shock remains: recession. The US, euro
emerging markets, with Chile and Central European countries in area and UK are all expected to see recessions next year, and the rest
recession. Recovery should start in the second half of 2023. of the world should continue to weaken, with China a notable exception.
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The recession shock likely means corporate earnings and economic

growth will come under pressure in the first half of the year, while at the

The end of Fed hikes and more conservative corporate balance sheet This year’s aggressive rate hikes should hit the world economy mainly in
management lead to a positive backdrop for credit: Weaker prospects 2023. We expect advanced economies to slip into recession, and we
for growth and higher rates lead managements to shift prioritization to forecast global growth at just 1.7%, one of the weakest years for the
debt reduction from share buybacks and capex. Total returns of world economy in 40 years. We recommend bonds over stocks, as well
approximately 9% are expected in investment grade credit in 2023 in as a healthy allocation to cash.
addition to a default rate peak of 5%, far below past recessions.
Barclays Barclays
The global economy looks set to enter a stagflationary phase: as Despite dire predictions, energy shortages in Europe this winter appear
Europe and the US contract, growth remains sluggish in China, but to have been averted, due in large part to unusually mild weather and
inflation fades only gradually. Bringing inflation back to target, while efforts to curb consumption. But the crisis is not over. Unless energy
output sinks and employment rises, will test central banks’ resolve. prices moderate significantly, gaps in industrial production and GDP
could persist, damaging competitiveness.
Barclays BCA Research

Controls on US semiconductor exports to China are part of a broader Relative to subdued expectations, growth will surprise to the upside in
strategic agenda that, although manageable for now, could have 2023, as the US averts a recession, Europe experiences a robust
substantial effects on China’s output and currency if escalated further. 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 BNP Paribas

Central bankers won’t ride to the rescue when growth slows in this new We expect a downturn in global GDP growth in 2023, led by recessions
regime, contrary to what investors have come to expect. We see central in both the US and the euro zone, with below-trend growth in China and
banks eventually backing off from rate hikes as the economic damage many emerging markets.
becomes reality. We expect inflation to cool but stay persistently higher
than central bank targets of 2%.

We see the first quarter of 2023 as a turning point for US and euro zone Output is likely to fall in 2023, with risks to the downside. Inflation will
government bond markets due to peaks in both central-bank policy probably fall too, but relatively slowly, remaining above target for some
rates and net supply net of QE/QT. In terms of fundamentals, the global time, with risks to the upside. As a result, despite recession, interest
growth downturn and disinflation point to lower yields throughout 2023. 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 BNY Mellon Investment Management

Our reading of the fundamentals is that there is a lot of pain yet to Bonds have an edge over equities in the near-term due to their
come. Our analysis suggests defensive positioning remains sensible for downside mitigation during growth slowdowns, while equities may
now, with cash and deleveraging trades our favoured asset classes. outperform strongly in the latter part of 2023 and into 2024 if/and when
economies rebound on the other side of recession.

Regionally, we prefer US equity to developed international and emerging Corporate credit remains at risk of wider credit spreads as economic
markets primarily due to the higher (albeit still low) likelihood of an activity deteriorates and financial conditions remain tight. We prefer
engineered soft landing, which would boost US equity disproportionally. investment grade to high yield and think there are selective
The outlook suggests staying defensive on a sector and factor basis, opportunities in higher quality corporate credit at attractive yields.
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
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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 Brandywine Global Investment Management

Outside of the US, the global economy is already in recession due to the The powerful rally in the dollar in 2022 was driven by an alignment of
effects of the strong dollar and a very weak China. China has started to factors that will not persist in 2023. The greenback is expensive, and
back away, slowly, from the policies that have been depressing activity. relative growth prospects point to a weaker dollar next year. Relative
If the dollar corrects lower as the US economy decelerates and inflation monetary policy will also tighten more outside the US, notably in Europe.
retreats, and the US avoids a bust, the world economy could be A weaker greenback will allow for some stability in EM currencies, which
stabilizing by this time next year. we think are broadly undervalued.
Carmignac Carmignac
2023 will be a year of global recession, but investment opportunities will In Europe, high energy costs are expected to affect corporate margins
arise from the continued desynchronization between the three largest and household purchasing power, and thus trigger a recession over this
economic blocs – the US, the euro area and China. 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 Carmignac
Unlike the bond market, equity prices do not incorporate the scenario of On the sovereign bond side, weaker economic growth is generally
a severe recession, so investors need to be cautious. Japanese equities associated with lower bond yields. However, given the inflationary
could benefit from the renewed competitiveness of the economy, environment, while the pace of tightening may slow or even stop, it is
boosted by the fall of the yen against the dollar. China will be one of the unlikely to reverse soon.
few areas where economic growth in 2023 will be better than in 2022.
Citi Citi Global Wealth Investments

Global growth is expected to slow to below 2% in 2023 — excluding We expect global growth will deteriorate for some of 2023. Markets will
China, global growth is likely to run at less than a 1% pace, near some then increasingly focus on the recovery that lies beyond. We enter the
definitions of global recession. Inflation next year is likely to gradually year defensively positioned but expect to pivot as a sequence of
decline but remain high on average. 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 Citi Global Wealth Investments

When the Fed does finally reduce rates for the first time in 2023 – an In the recovery period, we will also seek a reentry opportunity in cyclical
event that we expect after several negative employment reports – it will growth industries, as value equities may prosper when supply pipelines
do so at a time when the economy is already weakening. We think this are unable to meet revived demand.
will mark a turning point that will portend the beginning of a sustained
economic recovery in the US and beyond over the coming year.
Columbia Threadneedle Columbia Threadneedle

Investors should not expect everything to go “back to normal” in 2023. While economic growth is slowing, at this point it doesn’t look like a
Higher inflation and a weaker economic environment will mean not all recession in the US will be very deep. In contrast, economies in Europe
companies will thrive. are under significant stress and a deeper recession there seems likely.
Comerica Wealth Management Comerica Wealth Management

We expect a retest of the October lows (around 3,500) in the S&P 500 Given our base case, the mild-recession scenario, as well as the
Index, before investors price in a policy response and begin discounting possibility for a hard landing scenario, it is important for investors to
recovery in late 2023 and early 2024. This scenario should experience remain cautious and not get too aggressive during bear market rallies.
flat profits in 2023 and expectations of 5% earnings gains in 2024, and We anticipate heightened market volatility in the months and quarters
we would view the S&P 500 as fairly valued within the range of ahead until the market gets comfortable with the potential for peaks in
4,100-4,200 within the next 12 months. market interest rates, the dollar, and monetary policy along with troughs
in GDP, P/Es, and EPS.
Commonwealth Financial Network Commonwealth Financial Network

Our outlook for 2023 remains uncertain and will hinge on whether the We believe inflation is set to fall meaningfully throughout the coming
8 of 115 09/01/2023, 10:00 a.m.

Fed is able to rein in inflation while keeping us out of recession. But year as the economy slows due to the Fed’s aggressive interest rate
because the labor market continues to show strength, lending support hikes. We’ve already seen positive signs that drivers of inflation in key
to the consumer sector—the largest part of the economy—we are economic sectors have improved or rolled over. If that continues,
cautiously optimistic that the economy and markets will move in a without kicking off a recession, the Fed just may achieve its elusive soft
positive direction in the new year, though there may be some bumps landing.
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.
Credit Suisse Credit Suisse

The dollar looks set to remain supported going into 2023 thanks to a We expect the environment for real estate to become more challenging
hawkish US Federal Reserve and increased fears of a global recession. in 2023, as the asset class faces headwinds from both higher interest
It should stabilize eventually and later weaken once US monetary policy rates and weaker economic growth. We favor listed over direct real
becomes less aggressive and growth risks abroad stabilize. We expect estate due to more favorable valuation and continue to prefer property
emerging market currencies to remain weak in general. sectors with strong secular demand drivers such as logistics real estate.
Deutsche Bank Deutsche Bank

The recession we have now been anticipating for nine months draws We think the Fed and ECB will succeed in their missions as they stick to
nearer. A downturn may already be under way in Germany and the euro their guns in the face of what is likely to be withering public opposition
area overall thanks to the energy shock stemming from the Russia- as unemployment mounts. The moderate cost of doing so now will be
Ukraine war. Our expectation for a recession in the US by mid-2023 has much lower than failing to do so and having to deal with a more severely
strengthened on the back of developments since early last spring. 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 Fidelity
The recovery after the downturn will also be very modest. Growth rates We expect Chinese policymakers to continue to focus on reviving the
of 0.3% (2023) and 1.2% (2024) for the euro zone, and 0.4% and 1.3% economy, investing in longer-term areas such as green technologies
for the US. 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 Franklin Templeton

Our base case is inflation will further recede as supply chain pressures Recession and subsequent recovery may well be rapid and create
ease and central banks will remain committed to tighter policy. However, market volatility. We believe it will be as important as ever to be
the result of this policy is likely to be a slowing of the economy. 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 Generali Investments

The start of 2023 is dominated by a global – if desynchronized – We forecast a drop in global growth from 3.2% in 2022 to 2.1% in 2023.
economic slowdown (cold) but still elevated inflation (hot). Our core We expect barely positive US growth (0.3%), with even a mild
scenario sees a mild euro-area recession, and an even milder US one. contraction over the central quarters of 2023. We expect core CPI
Risks are skewed to the downside: such brutal tightening of monetary inflation to end 2023 slightly above 3% year-on-year. Europe is likely
policy and financial conditions rarely leaves the economy and markets entering recession at the turn of the year, while the Covid policy
unscathed. relaxation in China, along with a better credit impulse, will support a mild
recovery.

Selected EM markets offer value after years of underperformance, with We expect global growth of just 1.8% in 2023, as US resilience
dollar fatigue and China’s (mild) rebound both helping – we see EM as a contrasts with a European recession and a bumpy reopening in China.
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target for positioning early for the post-recession environment.
Goldman Sachs Goldman Sachs

The US should narrowly avoid recession as core PCE inflation slows China is likely to grow slowly in the first half as a reopening initially
from 5% now to 3% in late 2023 with a 0.5 percentage point rise in the triggers an increase in Covid cases that keeps caution high, but should
unemployment rate. To keep growth below potential amidst stronger accelerate sharply in the second half on a reopening boost. Our longer-
real income growth, we now see the Fed hiking to a peak of 5-5.25%. run China view remains cautious because of the long slide in the
We don’t expect cuts in 2023. property market as well as slower potential growth (reflecting weakness
in both demographics and productivity).

After a sharp increase in bond yields this year, new and potentially less Investors aren’t getting much compensation for the risk of owning
risky alternatives are emerging in fixed income: US investment grade equities or high-yield credit in comparison to lower risk bonds. As a
corporate bonds yield almost 6%, have little refinancing risk and are result, equities and high-yield debt are particularly exposed to an
relatively insulated from an economic downturn. Investors can also lock economic slowdown or recession.
in attractive real (inflation-adjusted) yields with 10-year and 30-year
Treasury inflation protected securities (TIPS) close to 1.5%.
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.

As uncertainty about growth lingers, higher quality fixed-income assets Markets are now pricing in a more dovish Federal Reserve, signalling an
— such as investment-grade company debt, asset-backed securities expectation that the US central bank will begin lowering its funds rate
and mortgage-backed securities — may be attractive investments next by the end of next year. Our economists, by contrast, don’t expect any
year. 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 Hirtle Callaghan

With inflation still running hot, central banks are more likely to try to cool In the case of a soft landing, the picture is brighter for equities if
economic growth and tighten financial conditions than to boost them. investors can look through this next year’s earnings. Valuations have
And if they don’t fight inflation, there’s a risk that longer-dated bond come down significantly, pricing in much of the bad news for this
yields will increase anyway because of rising long-term inflation coming year. We are positive on the outlook for corporate growth
expectations. looking a couple of years out if the Fed can achieve the soft landing it is
hoping for.

We think markets have become too complacent both in regard to the Bonds are the natural asset at this point in the economic and market
inflation and Fed outlook and the growth outlook. Virtually all of our cycle. We maintain a positive stance on the short-end of the US
cyclical leading indicators are still pointing to much more weakness on Treasury curve.
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
HSBC Asset Management JPMorgan

European and emerging credit markets seem particularly interesting. The good news is that central banks will likely be forced to pivot and
Even though the economic situation is difficult, corporate balance signal cutting interest rates sometime next year, which should result in a
sheets are in good shape, which should be a relative support in the sustained recovery of asset prices and subsequently the economy by
months to come. the end of 2023. The bad news is that in order for that pivot to happen,
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
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decline in inflation helps promote growth, but a US recession is likely

before the end of 2024.
JPMorgan JPMorgan
Global GDP growth in 2023 is forecast to climb 1.6%. Developed Market In currency markets, further dollar strength is still expected in 2023, but
growth is forecast at 0.8%, US growth is forecast at 1%, euro area of a lower magnitude and different composition than in 2022. The Fed
growth is projected to come in at 0.2%, China’s economy is forecast to pause should give the dollar’s rise a breather. Unlike in 2022, lower-
grow 4.0% and emerging market growth is forecast at 2.9% in 2023. 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.

At 2.9% in 2023, EM growth looks to remain well below its pre- Despite remaining above central bank targets, inflation should start to
pandemic trend, slowing modestly from 2022. EM excluding China is moderate as the economy slows, the labor market weakens, supply
expected to slow to a below-trend 1.8% with wide regional divergences. chain pressures continue to ease and Europe manages to diversify its
In China, the full-year 2023 growth forecast is 4% year-over-year, where energy supply.
two quarters of below-trend growth are assumed as the economy
loosens Covid restrictions.
JPMorgan Asset Management JPMorgan Asset Management

Given this uncertainty about inflation and growth, and the chunky yields Within credit markets, we believe that an “up-in-quality” approach is
available in short-dated government bonds, investors might want to warranted. The yields now available on lower quality credit are certainly
spread their allocation along the fixed income curve, taking more eye-catching, yet a large part of the repricing year to date has been
duration than we would have advised for much of the year. 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 Macquarie Asset Management

The US will enter recessionary conditions in the first half following the For 2023, we are most positive on infrastructure, fixed income and
UK and Europe; however, these recessions are likely to be over by agriculture. Listed equities and real estate face more headwinds in the
mid-2023 and the developed world could see a synchronized recovery near term, but there are still thematic opportunities in both asset
towards the end of the year. classes and cyclical opportunities will present themselves as the
downturns unfold and morph into recoveries.

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 Morgan Stanley

China should see a steady acceleration in growth over the course of In an environment of slow growth, lower inflation and new monetary
2023 if policy easing steps up a gear, as seems likely. policies, expect 2023 to have upside for bonds, defensive stocks and
emerging markets.

Equities next year, however, are headed for continued volatility, and we We forecast a marked slowdown in global economic growth in 2023:
forecast the S&P 500 ending next year roughly where it started, at 1.2% from 3.7% in 2022. Our projections are below market consensus
around 3,900. Consensus earnings estimates are simply too high, to the and official forecasts (the latter typically do not show recessions—yet).
point where we think companies will hoard labor and see operating The advanced economies are expected to endure a year of slowdown in
margins compress in a very slow-growth economy. 2023 with outright recessions in the US and UK and stagnation in the
covid.”
NatWest NatWest
Any acceleration in growth will be somewhat back-loaded and gradual in Relative growth and relative policy were clear dollar supports in 2022,
the coming year. Growth is forecast to regain momentum in 2024 as but each are set to turn in 2023 and we expect the dollar falls back to
inflation pressures recede and central banks ease monetary policy, the pack, with increasing confidence by second quarter. CAD may
albeit cautiously. weaken as a high beta USD. A more mature dollar rally opens long EM
opportunities.
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NatWest NatWest
Europe is already in recession. Inflation will slow and the ECB will slow We are not optimistic for a swift end to the war in Ukraine and a return
with it. But inflation risks are on the high side. A second phase of of Russian energy to global markets anytime soon. OPEC is setting
inflation, permitted by recovery in the second half, is more likely than a itself up to be in price-defense mode throughout 2023, and US
downturn that leads to rate cuts. Bearish risks to longer-term rates form production may continue to underwhelm as investment adjusts to fears
a long list. We target 2.75% in 10-year bunds. This contrasts with our US of weaker demand. In turn, the slowdown in global growth may not bring
rates views. Buy five-year Treasuries vs 10-year bunds – a hybrid with it a speedy drop in global energy prices.
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.
NatWest Ned Davis Research

We forecast a recession in the US, with GDP declining by 0.4% year-on- We estimate 2.4% real global GDP growth in 2023 and assign a 65%
year in 2023. We suspect we should see a relatively mild downturn in chance of severe global recession. Recession in developed economies
the current setting (peak-to-trough -1%) followed by a comparatively and a Chinese reopening present offsetting risks. Global inflation has
modest recovery (we expect below-trend growth of roughly 1% later in peaked but will stay higher for longer.
the year).

Like the global economy, the risk of recession weighs on the outlook for We think the next 12 months are likely to see this cycle’s peaks in global
US economic growth in 2023. We project real GDP growth will end the inflation, central bank policy tightening, core government bond yields
year in a range of -0.5% to 0.5%. We see a 75% chance that the and market volatility, as well as troughs in GDP growth, corporate
economy contracts for part of 2023 and give 25% odds to a soft- earnings growth and global equity market valuations. But we do not
landing scenario. believe this will mark a reversion to the post-2008 “new normal”. We
Neuberger Berman Neuberger Berman

We do not anticipate a major uptick in defaults: the economy has Consensus earnings growth estimates for 2023 did not fall in the same
historically been able to generate healthy growth with rates at these way as real GDP growth estimates, perhaps because high inflation has
levels, balance sheets are generally strong and maturities are generally supported nominal GDP growth. As inflation turns downward but
several years away, supporting a range of fixed income credit markets. remains relatively high as the economy slows, we think earnings
That said, in our view, the sooner investors work higher-rates-for-longer estimates are likely to be revised down. We also think dispersion will
into their credit analyses, the sooner they are likely to make what we increase, favoring companies that are less exposed to labor and
regard as the necessary portfolio adjustments. 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 Northern Trust

Private markets won’t be impervious to the ongoing slowdown. Exits are Northern Trust expects 2023 to be a turbulent year as conditions pivot
more difficult in volatile public markets, and while private company from inflation and monetary policy fears to a weak global economy, but
valuations tend not to fall as far as public market valuations, we do think the firm also expects market volatility to somewhat temper due to lower
they are likely to decline. Such a challenging environment is likely to inflation and a pause in central bank interest rate increases. A reduction
result in performance dispersion that tends to favor higher quality in rates is not seen as likely. We see downside risk from lower corporate
companies, especially where management has well-defined growth profits and revenues, but with upside potential from better sentiment.
plans as opposed to relying on leverage and multiple expansion.
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 Northern Trust
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Investment grade fixed income is our largest underweight. Barring a We see upside to commodities given under-investment creating
significant economic downturn, the magnitude of any longer term rate supply/demand imbalances, as well as increased demand from a China
decline should be limited and potentially more constructive for risk reopening and ongoing Russia disruption. Natural resources companies
asset returns. We prefer credit over term (interest rate) risk, especially show much improved fundamentals to help better weather economic
as rate volatility remains high. headwinds, while cheap valuations already reflect at least a portion of
these economic drags.
Nuveen Pictet Asset Management

We’re particularly favorable toward investment grade corporates and Dollar weakness. Slower growth. A big drop in inflation. Muted equities.
see opportunities in the higher quality segments of the high yield Bullish bonds. And a China rebound. All of this spells out the need for
market. In contrast, we remain cautious toward emerging markets debt investors to remain cautious on risk assets – particularly through the
given the likely continued strength of the US dollar and slower global first half of the year.
growth.
Pictet Asset Management Pictet Asset Management

We forecast global growth to slow to 1.7% in 2023, with stagnation in We see the return to global equities limited to some 5% for the coming
most developed economies and outright recession in Europe. China’s year, barely above the 3% we forecast for global government bonds. US
economy, on the other hand, is likely to re-accelerate as the government equities are set to show the best performance. This is thanks to
relaxes its zero-Covid policy. Overall, growth is likely to pick up again relatively attractive valuations, resilient domestic growth and the fact
following the first quarter. that the Fed is set to be the first of its peers to reach the end of its
hiking cycle.

The dollar is likely to edge back from its multi-decade highs. This should As we navigate a period of elevated inflation and an economic
help support emerging markets equities, as should a widening growth slowdown, our starting point is one of caution. Pimco’s business cycle
differential between emerging and developing economies. 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
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 Pimco
Our base case of an economic slowdown or recession would bring We believe corporate earnings estimates globally remain too high and
demand destruction and ease inflationary pressures, which also implies will have to be revised downward as companies increasingly
that the US Fed funds rate may peak in early 2023. 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 Robeco

A full China reopening will not happen overnight. Yet a roadmap for an We think that the belief in central bankers’ ability to prevent cyclical
end to China’s stringent Covid measures, coupled with additional downturn is flawed. Instead, we expect a hard landing. Risks are tilted to
stimulus policies, should provide the catalyst for a strong rebound in the downside for the 2023 consensus of US annual real GDP growth of
Chinese economic activity and risk assets in 2023. Global commodity 0.8%. As recessions tend to be highly disinflationary, we believe this will
prices also stand to benefit from this development. take the sting out of inflation.
Robeco Robeco
For the euro zone, the consensus of 0.4% real GDP growth in 2023 is While the dollar bull market could prove to be more persistent as the
fairly consistent with leading indicators like decelerating broad money Fed shows reluctance to pivot and as potential liquidity events trigger
growth in the region. But we flag the risk of excess tightening by the safe-haven flows towards the US, the dollar bull run will likely peak in
ECB, especially to get imported inflation under control. 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 Schroders
Supported by liquidity and growth, Hong Kong and mainland Chinese Global central banks are likely to press ahead with more rate hikes
equities stand a good chance of outperforming its peers, especially before a pivot, weighing onto economic growth prospects. We see
emerging markets. market expectations of a peak in US interest rates at close to 5% as
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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 T. Rowe Price

The balance between central bank tightening, high inflation, and slowing US equities remain expensive on a relative basis. However, the US
growth could produce rate volatility. Higher yields, especially for high economy appears to be on a stronger footing than the rest of the world,
yield bonds, are supported by strong fundamentals and can help and its less cyclical nature could provide support as global growth
provide a buffer against credit weakness. weakens.

A slowdown in the pace of Fed rate hikes should narrow rate US investment grade yields could peak in the first half of 2023 as
differentials, softening dollar strength. Given the level of overvaluation, inflation cools, allowing the Fed to moderate policy. Slowing growth and
economic surprises — such as a sooner-than-expected Fed pivot — inflation could support longer-duration bonds. Credit may prove resilient
easily could push the US currency lower in 2023. thanks to strong fundamentals.
TD Securities TD Securities
Dollar outlook hinges on the intersection of global growth, terminal rate Weaker growth and higher policy rates for most emerging-market
pricing, and terms of trade. While peak dollar is here, global growth isn’t economies. Valuations and positioning suggest some value for EM
strong enough to warrant a reversal yet. Expect consolidation in the first investors, but worsening external metrics increase vulnerability.
quarter and a deeper correction afterwards.
Truist Wealth Truist Wealth

We expect next year will be the worst year for global growth since the Our base case calls for a US recession in 2023, even though economic
1980s, aside from the global financial crisis and Covid years. Many growth in the US is expected to remain stronger relative to global peers.
countries are set to experience recessionary pressures as the Europe is likely to see the deepest recession, with countries closer to
supersized rate hikes of the past year start to take stronger hold. 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.

Within equities, we retain a US bias. Overseas markets remain cheap on We recommend patience within emerging-market sectors to start the
a relative basis, but valuation is a condition not a catalyst. Given the year. EM spreads remain susceptible to further widening (i.e.
weak global economic backdrop we expect next year, the US economy underperformance) given the deterioration expected in global economic
should remain a relative outperformer, and while the upward momentum activity. EM corporate and sovereign bond spreads above 400 basis
in the US dollar is likely to slow, it should remain relatively strong. points (4%) would offer an improved risk-reward balance.
Truist Wealth UBS

In the coming year, we expect inflation fears to evolve into growth We forecast a historically weak outlook: global growth of just 2.1% year-
concerns, particularly in Europe. The European Central Bank will likely on-year in 2023 would be the lowest since 1993 excluding the pandemic
be less aggressive in their policy response given Europe’s challenging and GFC. With 13 out of 32 economies expected to contract for at least
macro backdrop. This would cap upward moves in euro zone yields. As two quarters by end 2023, our forecast approaches something akin to a
a result, strong foreign demand for the relative yield advantage and “global recession.”
safe-haven quality offered by US government debt should apply some
downward pressure on US yields.
UBS UBS
For the US, we now expect near zero growth in both 2023 and 2024 Stocks are pricing in only 41% and 80% probabilities of a recession in
(roughly 1 percentage point below consensus), and a recession to start the US and Europe, respectively. Weak growth and earnings drag the
in 2023. Combined with inflation falling rapidly (50 basis points below market lower before a fall in rates helps it bottom at 3,200 in the second
consensus), the Fed would cut the Federal Funds rate down to 1.25% by quarter and lifts it to 3,900 by the end of 2023. With revenues and
early 2024. The speed of that pivot will drive every asset class next margins under greater pressure, Eurostoxx is likely to do worse,
year. 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.
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UBS UBS
As US carry advantage and rates volatility fade more rapidly than in a The economic weakness we forecast is widespread but it is not deep. It
typical recession, we expect the dollar to slowly fall against G-10 would be enough, however, to push unemployment 100 basis points
currencies. Its fall should be limited, however, by weak global growth, a higher in DM, and 200 basis points in the US (to 5.5%). Combined with
key driver for the dollar. We prefer AUD and NZD over CAD, and NOK inflation coming down rapidly in the coming quarters, that creates a
over SEK. We see Asia in particular under pressure in the first half amid much stronger central bank pivot than is priced by the market: about
a weak trade backdrop, low carry and a need to rebuild depleted FX 200 basis points in DM cuts by mid-2024 (and nearly 400 basis points
reserves. 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 UBS Asset Management

Against long-term average global growth of 3.5%, the common signal While a recession is a very real possibility, investors may be surprised by
across assets is pricing in 3% global growth. That’s sub-trend but not the resilience of the global economy – even with such a sharp tightening
recessionary. High-yield credit is most optimistic, equities less so. But a in financial conditions. The labor market will certainly cool, but healthy
deep dive within equities shows that even they are not priced for a household balance sheets should continue to support spending in the
recession yet. US equities are pricing in only a 41% probability of services sector. Moreover, some of the major drags on the world
recession, compared to 80% in Europe (which is already in recession) economy emanating from Europe and China are poised to get better,
and 64% for China. The decline in stocks thus far can be fully explained not worse, between now and the end of the first quarter of 2023.
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 UBS Asset Management

In our view, it is too early to pre-position for very negative economic The US economy (and earnings) probably don’t fall off as sharply as
outcomes. A longer-lasting late cycle environment can persist for some many are projecting, and, however, also the Fed will need to keep rates
time, and investors will have to be flexible and discerning in 2023 given higher for longer.
these potential dynamics.

Our confidence that the bottom is in for China is fortified since these Going into 2023, we expect global equities at an index level to remain
adjustments to Covid-19 policy are taking place in tandem with the most range-bound. They will likely be capped to the upside by the Fed’s
comprehensive support for the property sector to date. A rebounding desire to keep financial conditions from easing too much. However, we
China may provide a needed boost as developed economies slow, but expect some cushion on the downside from a resilient economy and
will also likely lead to higher commodity prices. This too may make it rebounding China.
difficult for the Fed and other central banks to back off too quickly.

Financials and energy are our preferred sectors. This is because we China’s reopening should fuel a pick-up in domestic oil demand,
believe cyclically-oriented positions should perform if what appears to offsetting some of the downward pressure on inflation from goods
be overstated pessimism on global growth fades in the face of resilient prices.
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.

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.

We see commodities as attractive both on an outright basis and for the In currencies, we believe we have moved from a strong, trending US
hedging role they serve in multi-asset portfolios. Already low inventories dollar to more of a rangebound trade in USD. Our catalysts for a broad
can continue to shrink in an environment of slowing growth so long as turn in the dollar are for the Fed to stop hiking interest rates, China’s
supply remains constrained – as is the case across most key zero-Covid-19 policy to end, and energy pressures in Europe stemming
commodity markets. 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,
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but slowing, could provide a very positive backdrop for high carry,
commodity-linked currencies. We prefer the Brazilian real and Mexican
peso.
UniCredit UniCredit
We forecast a mild technical recession in both the US and the euro We forecast global GDP growth of 1.9% next year – a de facto global
zone, followed by a below-trend recovery. The risks to growth are recession – followed by a weak recovery in 2024 of 2.6%.
UniCredit Vanguard
The ongoing sharp monetary tightening and upcoming recession pose Growth is likely to end 2023 flat or slightly negative in most major
significant downside risks. However, evidence of slowing core inflation, economies outside of China. Unemployment is likely to rise over the
peaking official rates and signs of economic recovery would pave the year but nowhere near as high as during the 2008 and 2020 downturns.
way for more risk taking in the second half. Through job losses and slowing consumer demand, a downtrend in
inflation is likely to persist through 2023.
Vanguard Wells Fargo

Within the US market, value stocks are fairly valued relative to growth, G10 central banks followed the same playbook for most of 2022. This
and small-capitalization stocks are attractive despite our expectations already has begun to change, and differences should be quite
for weaker near-term growth. 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.

The ECB and BOE have already shown more concern for slowing We expect a U.S. recession in the first half of 2023, as well as a
growth vs. high inflation, and seem more inclined to pivot away from continued global economic slowdown, as last year’s hawkish monetary
inflation fighting in a stagflation scenario. In contrast, the Fed’s bar for policy and money growth slowdown works with a lag. That should drive
pivoting seems higher. Private debt has been more contained in the US down corporate earnings growth and create important inflection points
relative to its peers, but debt has still risen sharply over the last few for investors over the next nine to 12 months.
decades.
Wells Fargo Investment Institute Wells Fargo Investment Institute

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

We favor US large-cap and US mid-cap equities over international Long-term yields tend to peak before the Fed finishes raising rates. We
equities and remain tilted toward quality and defensive sectors. Our favor remaining nimble in bond portfolio allocations with a barbell
positioning will likely shift to more cyclical in 2023 as we anticipate the strategy that lengthens maturities but also takes advantage of ultra-
eventual recovery. short term yields. An eventual economic recovery in the latter half of the
year should begin to support credit-oriented asset classes and sectors.
RECESSION

In Europe, the energy shock, compounded by inflationary pressures In the US, the Fed’s aggressive tightening has increased the risk of
related to the aftermath of the Covid crisis, remains the main dampener recession in the second half, while again failing to dent inflation.
on growth. The ensuing cost-of-living crisis will drag Europe into
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Inflation will stay stubbornly high through most of 2023. Central banks Given decelerating global growth and a profit recession in the first half
will continue their “whatever it takes” policy to avoid a 1970-style crisis. of 2023, investors should remain defensive for now with gold and
Tightening has further to go, but at a slower pace than in 2022. The investment-grade credit the favored asset classes. However, they
level of the Fed terminal rate will be critical, raising the odds of a US should be ready to adjust through the year to exploit market
recession if it ends up close to 6%. opportunities that will emerge, as valuations get more attractive.

As bonds regain diversification qualities after the surge in yields in 2022 A policy-induced recession looks like the price to pay to get inflation
and looming recession risks next year, a revival of the 60-40 portfolio back under control after a peak in late 2022. While we are confident
allocation is in sight. that by the middle of 2023 the world economy will start improving again,

We expect inflation to fall back towards target over the coming two The Fed won’t want to cut rates as quickly as the market is currently
years as global growth slows, with recessions forecast in both Europe pricing (second half of 2023) since they will want to be satisfied that
and the US. 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

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.

Even after the significant de-rating already seen, stock markets are still Domestic and external headwinds will trigger a marked slowdown in
vulnerable to the expected earnings recession. emerging markets, with Chile and Central European countries in
recession. Recovery should start in the second half of 2023.
Bank of America Bank of America

Going into 2023, one expected shock remains: recession. The US, euro A recession is all but inevitable in the US, euro area and UK. Expect a
area and UK are all expected to see recessions next year, and the rest mild US recession in the first half of 2023 with a risk that it starts later.
of the world should continue to weaken, with China a notable exception. Europe likely sees recession this winter with a shallow recovery
The recession shock likely means corporate earnings and economic thereafter as real incomes and likely overtightening pressure demand.

After a historically bad year for industrial metals in 2022, cyclical and A strong labor market, ESG, US/China decoupling, and
secular drivers are expected to boost metals in 2023, and copper rallies deglobalization/reshoring are expected to keep certain areas of capex
approximately 20%. Recessions in key markets are a headwind but strong, even in the event of a recession.
China’s reopening, a peaking dollar and especially an acceleration of
renewables investment should more than offset these negative factors
for copper.

The end of Fed hikes and more conservative corporate balance sheet This year’s aggressive rate hikes should hit the world economy mainly in
management lead to a positive backdrop for credit: Weaker prospects 2023. We expect advanced economies to slip into recession, and we
for growth and higher rates lead managements to shift prioritization to forecast global growth at just 1.7%, one of the weakest years for the
debt reduction from share buybacks and capex. Total returns of world economy in 40 years. We recommend bonds over stocks, as well
approximately 9% are expected in investment grade credit in 2023 in as a healthy allocation to cash.
Barclays
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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 BCA Research

Relative to subdued expectations, growth will surprise to the upside in We would not rule out a US recession over the next 24 months.
2023, as the US averts a recession, Europe experiences a robust However, if a recession does occur, it will probably not start until 2024.
recovery following the energy crisis, and China dismantles its zero- More importantly, any US recession is likely to be a mild one – so mild, in
Covid policies. Growth will weaken towards the end of 2023, with a mild fact, that it may end up being almost indistinguishable from a soft
recession probable in 2024 landing.

The conventional wisdom sees stocks falling in the first six months of Global bond yields will move sideways in the first half of next year, as
2023 in anticipation of a US recession and then recovering in the back the impact of falling inflation broadly offsets the impact of better-than-
half of the year once the first green shoots appear. We think the exact expected growth data. Yields should drop modestly in the second half
opposite will happen: Stocks will rise in the first half of 2023 as hopes of the year as the US economy edges closer to recession.
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.
BlackRock Investment Institute BlackRock Investment Institute

The new regime of greater macro and market volatility is playing out. A Equity valuations don’t yet reflect the damage ahead, in our view. We will
recession is foretold; central banks are on course to overtighten policy turn positive on equities when we think the damage is priced or our view
as they seek to tame inflation. This keeps us tactically underweight of market risk sentiment changes. Yet we won’t see this as a prelude to
developed market equities. We expect to turn more positive on risk another decade-long bull market in stocks and bonds.
assets at some point in 2023 – but we are not there yet. And when we

The case for investment-grade credit has brightened, in our view, and We expect a downturn in global GDP growth in 2023, led by recessions
we raise our overweight tactically and strategically. We think it can hold in both the US and the euro zone, with below-trend growth in China and
up in a recession, with companies having fortified their balance sheets many emerging markets.
by refinancing debt at lower yields.
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 BNP Paribas

We see the first quarter of 2023 as a turning point for US and euro zone We see a transition from “rates risk” to “ratings risk” in 2023, with
government bond markets due to peaks in both central-bank policy weaker fundamentals not yet in the price. US investment grade spreads
rates and net supply net of QE/QT. In terms of fundamentals, the global will peak at 200 basis points, we expect, fully discounting a recession.
growth downturn and disinflation point to lower yields throughout 2023.

With Europe and the UK in or approaching recession, China slowing Output is likely to fall in 2023, with risks to the downside. Inflation will
sharply and the US “needing” one to bring inflation back to target, it is probably fall too, but relatively slowly, remaining above target for some
our belief that “Global Recession” remains our single most likely time, with risks to the upside. As a result, despite recession, interest
scenario – we give it a 60% probability. rates are set to rise further, though with risks to the downside. All this

Is it time to call the bottom and go overweight equities? According to Bonds have an edge over equities in the near-term due to their
our outlook – no. There’s a stronger case for increasing allocations to downside mitigation during growth slowdowns, while equities may
fixed income, which does well in a couple of diametrically opposed outperform strongly in the latter part of 2023 and into 2024 if/and when
circumstances: first, if there’s a soft landing and rates don’t have to rise economies rebound on the other side of recession.
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 Brandywine Global Investment Management
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Higher for longer rates – with divergence favoring the dollar - tightens The most intense period of economic softness is likely to be in the first
global financial conditions and sets off a global recession, denting half of 2023, based on the weight of leading indicators. However, there
corporate earnings and risk assets through the first half of 2023. are a range of factors that could limit downside recessionary forces,

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.

Outside of the US, the global economy is already in recession due to the In addition to the favorable technical developments for bonds in 2023,
effects of the strong dollar and a very weak China. China has started to two potential disinflationary outcomes for the global economy also
back away, slowly, from the policies that have been depressing activity. support fixed income, particularly if an investor’s time horizon is the
If the dollar corrects lower as the US economy decelerates and inflation entire year. We expect a job-killing recession is necessary to break
retreats, and the US avoids a bust, the world economy could be inflation and get it close to central banks’ 2% target. That means there
stabilizing by this time next year. 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 Carmignac
2023 will be a year of global recession, but investment opportunities will We expect the US economy to enter a recession later this year but with
arise from the continued desynchronization between the three largest a much sharper and longer decline in activity than anticipated by the
economic blocs – the US, the euro area and China. 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 Carmignac
In Europe, high energy costs are expected to affect corporate margins The typical recession playbook calls for a portfolio leaning towards
and household purchasing power, and thus trigger a recession over this defensive bias, on the fixed income front favoring long term bonds
quarter and next. The recession should be mild as high gas storages issued by well-rated issuers, on equities those companies and sectors
should prevent energy shortages. However, economic recovery from the providing for the greatest resilience, and on foreign-exchange markets
second quarter onward is expected to be lackluster, with businesses currencies which tend to benefit from a safe-haven status.
Carmignac Carmignac
In equity markets, while the drop in valuations appear broadly consistent Unlike the bond market, equity prices do not incorporate the scenario of
with a recessionary backdrop, there are wide disparities between a severe recession, so investors need to be cautious. Japanese equities
regions - even more so on earnings. The eyes of global investors are could benefit from the renewed competitiveness of the economy,
focused on Western inflation and growth dynamics. Looking towards boosted by the fall of the yen against the dollar. China will be one of the
the East should prove salutary and offer most welcomed diversification. 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
Citi Citi
We think that the Fed will keep going, even if at a shallower pace, which Global growth is expected to slow to below 2% in 2023 — excluding
in the end means that the peak in US rates may only come in early China, global growth is likely to run at less than a 1% pace, near some
2023, rather than being already in. We also think that recession fears definitions of global recession. Inflation next year is likely to gradually
should eventually undermine risky assets again, especially in the US. decline but remain high on average.
Citi Citi
We reduce our negative credit views, by taking European credit back to Short copper has been our recession trade in commodities. While the
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flat, on the view that the bottom in the ZEW may be in, which has Chinese reopening is a risk to the trade, our metals strategist thinks that
historically been a positive factor. It is hard to see how shocks in 2023 copper is unlikely to benefit enough, given that Chinese housing may
will be even worse for Europe than what we saw 2022. But given the US stop falling, but will not rebound much, and given the US recession. We
recession view we stick to underweights in both US investment grade therefore stay negative. We stay neutral in energy and gold.
and high yield.

We believe that the Fed’s rate hikes and shrinking bond portfolio have We need to get through a recession in the US that has not started yet.
been stringent enough to cause an economic contraction within 2023. We believe that the Fed’s current and expected tightening will reduce
And if the Fed does not pause rate hikes until it sees the contraction, a nominal spending growth by more than half, raise US unemployment
deeper recession may ensue. 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.

We need to get through a deeper recession in Europe as it struggles Ahead of the expected recession, we are committed to selectivity and
through a winter of energy scarcity and inflation. We also need to see a quality. This begins with fixed income, which we believe offers genuine
sustained economic recovery in China, whose prior regulatory policies portfolio value now for the first time in several years. Short-duration US
and current Covid policies curtail domestic growth. 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.

In 2023, we envision an environment of moderating but persistent price Should global conditions worsen and a deeper recession, or hard
pressures that will keep monetary policymakers on a steady, but less landing ensues it’s conceivable that S&P 500 profits decline to the
aggressive, tightening path. Our base case calls for mild recession early $200 range in 2023. In this scenario, we do not expect technical
in the year and steady market interest rates. 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.

Given our base case, the mild-recession scenario, as well as the Our outlook for 2023 remains uncertain and will hinge on whether the
possibility for a hard landing scenario, it is important for investors to Fed is able to rein in inflation while keeping us out of recession. But
remain cautious and not get too aggressive during bear market rallies. because the labor market continues to show strength, lending support
We anticipate heightened market volatility in the months and quarters to the consumer sector—the largest part of the economy—we are
ahead until the market gets comfortable with the potential for peaks in cautiously optimistic that the economy and markets will move in a
market interest rates, the dollar, and monetary policy along with troughs positive direction in the new year, though there may be some bumps
in GDP, P/Es, and EPS. along the way.
Commonwealth Financial Network Credit Suisse

We believe inflation is set to fall meaningfully throughout the coming We expect the euro zone and UK to have slipped into recession, while
year as the economy slows due to the Fed’s aggressive interest rate China is in a growth recession. These economies should bottom out by
hikes. We’ve already seen positive signs that drivers of inflation in key mid-2023 and begin a weak, tentative recovery – a scenario that rests
economic sectors have improved or rolled over. If that continues, on the crucial assumption that the US manages to avoid a recession.
without kicking off a recession, the Fed just may achieve its elusive soft Economic growth will generally remain low in 2023 against the
landing. backdrop of tight monetary conditions and the ongoing reset of
geopolitics.

The dollar looks set to remain supported going into 2023 thanks to a The recession we have now been anticipating for nine months draws
hawkish US Federal Reserve and increased fears of a global recession. nearer. A downturn may already be under way in Germany and the euro
It should stabilize eventually and later weaken once US monetary policy area overall thanks to the energy shock stemming from the Russia-
becomes less aggressive and growth risks abroad stabilize. We expect Ukraine war. Our expectation for a recession in the US by mid-2023 has
emerging market currencies to remain weak in general. 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
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possible to do so without at least moderate economic downturns in the

US and Europe, and significant increases in unemployment.

Overall, we see output declining 1% in the euro area and 2% in the US Equity markets are projected to move higher in the near term, plunge as
during the year ahead. World growth slows to around 2% in this the US recession hits and then recover fairly quickly. We see the S&P
forecast, a rate that has historically been labeled recessionary. 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.

The 10-year Treasury yield is projected to remain in its recent range in Corporate credit spreads should widen significantly through the year,
the months to come, and then rally moderately around midyear as the especially around midyear as it become clear the US recession is under
US downturn approaches. The German Bund yield should rise to 2.60% way.
by the second quarter before remaining relatively stable in comparison
to Treasury yields.

We expect the dollar to move sideways against the euro and then to Supply constraints will keep oil prices elevated in the neighborhood of
weaken significantly as the recession hits and risk premia favoring the $100 per barrel until demand softens with the US downturn; then see
dollar begin to diminish. these prices declining $20 by year end.

The current mix of aggressive central bank rate hiking to deal with We see the risks still weighted toward more severe recessions being
elevated inflation, geopolitical uncertainty and elevated commodity needed to get the disinflation job done successfully, and we assume the
prices, and impending recession in the euro area and US has been a Fed and ECB will be up to the task if needed.
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
DWS DWS
On the corporate side, profits are likely to come under pressure, but The yields of solid corporate bonds are even higher than the
much less so than in past recessions. In view of the higher interest rate corresponding dividend yields. The outlook for this asset class – with a
level, bonds are significantly more attractive than in the past, as a yield view to the next 12 months – is extremely positive, the risks manageable.
generator and as a diversification instrument. In general, however, the The imminent recession is already priced into the interest rate
return prospects of risk assets are limited, but high enough to be able to premiums. The balance sheets of most companies are much more solid
beat inflation. than they used to be in times of an economic downturn.
DWS Fidelity
On the credit side, there are currently no excessively high risks in sight. Markets want to believe that central banks will blink and change
Senior bank bonds and hybrid corporate bonds with yields of 6% to 7% direction, negotiating the economy towards a soft landing. But in our
are particularly promising. Also interesting are the riskier euro high-yield view, a hard landing remains the most likely outcome in 2023. A
bonds, which currently have yields of 7.3%. At 0.7%, default rates are at recession is likely in the US and near certain in Europe and the UK.
a historically very low level. They are likely to rise, but much less than in
previous phases of an economic downturn.
Fidelity Fidelity
If the Fed continues to raise rates, an even stronger dollar could We have repeatedly argued that the financial system cannot take
accelerate the onset of recession elsewhere. Conversely, a marked positive real rates for any material length of time (due to high levels of
change in the dollar’s direction, potentially as its relative strength and debt) before financial stability becomes an issue. Given liquidity and
confidence in monetary and fiscal policy making become an issue, could assets are already under considerable pressure, the system could start
bring broad relief, and increase overall liquidity across challenged to crack. There is a risk that if the Fed stays true to its current word and
economies. doesn’t stop until inflation is back near 2%, a “standard” recession could
turn into something worse.
Fidelity Fidelity
Were the US to head into recession next year, credit defaults would rise The private credit markets could prove a defensive option as economies
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significantly. So far, the market is yet to reflect these risks, notably in brace for recession in 2023, due to their structural features and the
high yield credit. Prudent credit selection within high yield is therefore relative strength of the asset class.
essential.
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.

Europe is likely already in a recession and the US is likely to fall into one Recession and subsequent recovery may well be rapid and create
— hopefully a mild one. Risk/reward profiles seem to favor fixed income market volatility. We believe it will be as important as ever to be
over global equities, particularly for the first half of 2023. diversified and actively select investments, particularly when tilting
toward risk assets.

recovery.

We stay defensive on high yield, as defaults are starting to pick up and For now, we recommend a small underweight in equities (and high-
spreads seem to be mispricing the developing recession pressures. 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.

The fundamentally overvalued dollar is past peak. The Fed’s final hike We expect global growth of just 1.8% in 2023, as US resilience
looming for early spring 2023 is set to reduce rates uncertainty (a contrasts with a European recession and a bumpy reopening in China.
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.

The euro area and the UK are probably in recession, mainly because of Investors aren’t getting much compensation for the risk of owning
the real income hit from surging energy bills. But we expect only a mild equities or high-yield credit in comparison to lower risk bonds. As a
downturn as Europe has already managed to cut Russian gas imports result, equities and high-yield debt are particularly exposed to an
without crushing activity and is likely to benefit from the same post- economic slowdown or recession.
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 HSBC
We think markets have become too complacent both in regard to the Diversification benefits are very scarce in an environment that is driven
inflation and Fed outlook and the growth outlook. Virtually all of our so much by one single factor (inflation/the Fed). One of the only asset
cyclical leading indicators are still pointing to much more weakness on classes that has a high-enough loss threshold in both a recession and a
the growth side in the coming two to three quarters. The point here is sticky inflation/labor market scenario is probably investment-grade
that these signals are no longer confined to just one particular area of credit.
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HSBC Asset Management HSBC Asset Management

Inflation should still be persistently high for much of 2023, and on the Value still makes sense as rates continue to rise, although this needs to
back of rapid tightening by the Federal Reserve we are forecasting a be balanced against a deteriorating macro outlook and lower
recession for the US in 2023 - a corporate profits recession in the first commodity prices. The coming switch in the macro story from
half of the year, followed by a GDP recession. stagflation toward recession should favor defensive and quality factors.
JPMorgan JPMorgan
The good news is that central banks will likely be forced to pivot and The global growth outlook remains depressed, but we do not see the
signal cutting interest rates sometime next year, which should result in a global economy at imminent risk of sliding into recession, as the sharp
sustained recovery of asset prices and subsequently the economy by decline in inflation helps promote growth, but a US recession is likely
the end of 2023. The bad news is that in order for that pivot to happen, 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.

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

The potential for bonds to meaningfully support a portfolio in the most Our 2023 base case of positive returns for developed market equities
extreme negative scenarios – such as a much deeper recession than we rests on a key view: a moderate recession has already largely been
envisage, or in the event of geopolitical tensions – is perhaps most priced into many stocks.
important for multi-asset investors.

The US will enter recessionary conditions in the first half following the For 2023, we are most positive on infrastructure, fixed income and
UK and Europe; however, these recessions are likely to be over by agriculture. Listed equities and real estate face more headwinds in the
mid-2023 and the developed world could see a synchronized recovery near term, but there are still thematic opportunities in both asset
towards the end of the year. classes and cyclical opportunities will present themselves as the
downturns unfold and morph into recoveries.

Macquarie Asset Management remains cautious toward equities due to Bond yields rose considerably in 2022, offering attractive valuations and
earnings risks and anticipates a decline in equity markets as the strong protection levels for investors in investment grade, high yield
developed world endures recessionary conditions. The asset manager markets, and developed world sovereigns. However, in Macquarie Asset
sees opportunities in playing key thematics, such as deglobalisation and Management’s view, a defensive position is warranted given the
onshoring, with construction and engineering firms, railroads, and potential for recessions and inflation to undermine the strong start to
consumer discretionary firms becoming the major beneficiaries. 2023.

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.

Within credit, fundamentals remain strong in both investment grade and We think it likely that both the UK (as of the third quarter 2022) and the
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high yield markets. However, we are entering an uncertain euro area (starting fourth quarer 2022) are already in recession. For the
macroeconomic environment with the impact from inflationary cost US, we think recession risks are high enough for it to be considered our
pressures and deteriorating growth likely to lead to weaker base case, although we don’t expect one to start until the first half of
fundamentals. Against this backdrop, we believe defensive positioning 2023. These recessions are likely to be relatively mild, however, with
within high-quality credit is appropriate. peak-to-trough falls in gross domestic product (GDP) ranging from -1.5%
in the US to -2.5% in the UK.

Bonds — the biggest losers of 2022 — could be the biggest winners in We forecast a marked slowdown in global economic growth in 2023:
2023, as global macro trends temper inflation next year and central 1.2% from 3.7% in 2022. Our projections are below market consensus
banks pause their rate hikes. This is particularly true for high-quality and official forecasts (the latter typically do not show recessions—yet).
bonds, which historically have performed well after the Federal Reserve The advanced economies are expected to endure a year of slowdown in
stops raising interest rates, even when a recession follows. 2023 with outright recessions in the US and UK and stagnation in the
covid.”
NatWest NatWest
With the US expected to enter a recession starting in the first quarter Europe is already in recession. Inflation will slow and the ECB will slow
and lasting through to the second, and with our expected terminal Fed with it. But inflation risks are on the high side. A second phase of
funds rate of 5% well-priced, we look for yields to peak if they have not inflation, permitted by recovery in the second half, is more likely than a
already—we see 10-year yields ending 2023 at 3.35%. 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
steepening bias.

We forecast a recession in the US, with GDP declining by 0.4% year-on- We estimate 2.4% real global GDP growth in 2023 and assign a 65%
year in 2023. We suspect we should see a relatively mild downturn in chance of severe global recession. Recession in developed economies
the current setting (peak-to-trough -1%) followed by a comparatively and a Chinese reopening present offsetting risks. Global inflation has
modest recovery (we expect below-trend growth of roughly 1% later in peaked but will stay higher for longer.
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 Northern Trust

It’s highly likely that the European economy fell into recession in the The firm expects growth to continue to be constrained globally, with
fourth quarter of 2022 due to the energy shock brought by Russia’s war some regions arguably already in recession and others on the precipice.
and tighter monetary policy. We forecast a 0% to 0.5% growth rate for It also believes that China’s pandemic-to-endemic transition will
the euro zone in 2023, as the recession continues into next year. We continue to materially impact the outlook for global economic demand.
expect the recession to be mild. The outlook, however, is uncertain and
is almost entirely driven by energy.

We are neutral duration risk. In 2023 we expect Fed rate hikes to total We’re growing a bit more wary toward credit risk as recession indicators
0.50% to 0.75%, to reach a steady policy rate of 5%, likely sufficiently rise, which could cause some spread widening. We think corporate
high for a Fed pause. Treasury yields are likely move slightly higher but credit fundamentals remain solid and we’re not expecting a significant
remain stable thereafter as we think labor market strength will make the rise in defaults since most companies have been focusing on improving
Fed hesitant to reverse course. Non-US interest rates to hold steady or their balance sheets.
even decline on less inflation risk and higher recession risk than in the
US.

We forecast global growth to slow to 1.7% in 2023, with stagnation in As we navigate a period of elevated inflation and an economic
most developed economies and outright recession in Europe. China’s slowdown, our starting point is one of caution. Pimco’s business cycle
economy, on the other hand, is likely to re-accelerate as the government models forecast a recession across Europe, the UK, and the US in the
relaxes its zero-Covid policy. Overall, growth is likely to pick up again next year, and the major central banks are pressing ahead with policy
following the first quarter. tightening despite increasing strain in financial markets.
Pimco Pimco
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Our base case of an economic slowdown or recession would bring We see ample evidence that both the near- and long-term case for fixed
demand destruction and ease inflationary pressures, which also implies income is strong today. Higher starting yields have increased long-term
that the US Fed funds rate may peak in early 2023. 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
Pimco Pimco
As a recession begins and inflation slows, duration is likely the first Once a recession is underway and the initial deleveraging is mostly
asset class to be poised for outperformance, especially in rate-sensitive done, we expect high quality investment grade credit spreads would
countries like Australia and Canada as well as select emerging markets also begin to tighten. This year, the initial condition of corporate balance
that are ahead in the hiking cycle. 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 Principal Asset Management

2023 is sizing up to be a better year for some segments of the market While the Federal Reserve will hike a few more times in 2023, it is likely
than 2022. Inflation and central bank policy will likely continue being a nearing the completion of its tightening cycle. This implies that bonds
key focus for investors. Yet, while persistently restrictive monetary will be able to support portfolios as recession approaches, with
policy and the resulting US recession will weigh on the broad equity government bond yields under downward pressure and securitized debt
market outlook, it implies opportunities for both core fixed income and typically providing protection during periods of volatility and risk.
real assets.
Robeco Robeco
In our base case, 2023 will be a recession year that – once the three We think that the belief in central bankers’ ability to prevent cyclical
peaks in inflation, rates and the dollar have been reached – will downturn is flawed. Instead, we expect a hard landing. Risks are tilted to
ultimately contribute to a considerable brightening of the return outlook the downside for the 2023 consensus of US annual real GDP growth of
for major asset classes. But we first need to brace for more pain in the 0.8%. As recessions tend to be highly disinflationary, we believe this will
short term. take the sting out of inflation.
Robeco Robeco
With core inflation still well above target in the first half of 2023, central Comparing high yield valuations with those of equities, high yield looks
bankers will likely stretch the pause after the hiking cycle and be more attractive at this stage. We expect an earnings recession to gain
reluctant to cut interest rates, even in the face of a US recession. 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 Schroders
The overall market outlook for 2023 will largely depend on the direction Recession may not necessarily be bad for all markets since financial
of US Fed monetary policy, which the firm sees pivoting, and whether or markets tend to be forward-looking and are likely to have already priced
not a global recession would become a reality, which the team in much of the negative impact.
considers likely.
Schroders Schroders
Schroders expects 2023 to usher in a turning point for global equities We tend to focus on resilient companies that are of high profit margins
after the sharp corrections seen year-to-date this year. Valuations are and low leverage ratios. Usually, these are quality stocks that can
now at more attractive levels where investors may look to quality generate profits even in tough, recession-prone environments.
companies across markets for opportunities when the time is ripe,
subject to recessionary risks and currently over-optimistic expectations
on corporate earnings.
Societe Generale Societe Generale
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2023 should be a year during which the real economy finally We expect euro investment grade to generate excess returns of more
deteriorates into a (mild) recession, monetary conditions gradually stop than 5% in 2023 and total returns of just under 10%, which would be the
tightening, while systemic risk grows. 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.

Fair value for the S&P 500 currently reads at 3,650 based on our With leading economic indicators falling deeper into negative territory —
inflation moderation valuation framework. But we expect negative EPS flashing warning signs of a recession — additional earnings downgrades
growth in the first quarter, a Fed pivot in the second, China re-opening in are highly likely.
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
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.

Cheaper valuations reflect the current challenges from high inflation, 2023 will see a balancing act from central banks, as they maintain
recession risks, and an energy crisis in Europe. An easing of these restrictive policy to bring inflation down against a backdrop of
headwinds and continued fiscal support could provide upside over the recessions across most of the G-10. Inflation remains above target all
course of 2023. Valuations are compelling, but high energy costs and year, and we anticipate a global recession.
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 Truist Wealth

Forward corporate earnings have not started correcting for the We expect next year will be the worst year for global growth since the
recession. We expect wider credit spreads, decompression between 1980s, aside from the global financial crisis and Covid years. Many
high-yield vs investment grade, and focus on higher-quality, lower- countries are set to experience recessionary pressures as the
maturity exposures. supersized rate hikes of the past year start to take stronger hold.

Our base case calls for a US recession in 2023, even though economic The equity market’s reset is a positive for longer-term returns. However,
growth in the US is expected to remain stronger relative to global peers. the near-term risk/reward remains unfavorable given elevated recession
Europe is likely to see the deepest recession, with countries closer to risk, uncompelling valuations, and downside earnings risk.Our shorter-
Ukraine and Russia being hit especially hard. term, tactical outlook leads us to remain defensive heading into 2023.
Truist Wealth UBS

Historically, earnings around recessions have averaged a drop of almost We forecast a historically weak outlook: global growth of just 2.1% year-
20%. We don’t necessarily believe that earnings have to fall that far on-year in 2023 would be the lowest since 1993 excluding the pandemic
given how well corporations have navigated the pandemic and the fact and GFC. With 13 out of 32 economies expected to contract for at least
that elevated inflation raises nominal sales figures, but there remains two quarters by end 2023, our forecast approaches something akin to a
downside risk. “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 UBS
Stocks are pricing in only 41% and 80% probabilities of a recession in As US carry advantage and rates volatility fade more rapidly than in a
the US and Europe, respectively. Weak growth and earnings drag the typical recession, we expect the dollar to slowly fall against G-10
market lower before a fall in rates helps it bottom at 3,200 in the second currencies. Its fall should be limited, however, by weak global growth, a
quarter and lifts it to 3,900 by the end of 2023. With revenues and key driver for the dollar. We prefer AUD and NZD over CAD, and NOK
margins under greater pressure, Eurostoxx is likely to do worse, over SEK. We see Asia in particular under pressure in the first half amid
bottoming in the second quarter at 330 & ending 2023 at 385. As a part a weak trade backdrop, low carry and a need to rebuild depleted FX
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of our top trades we lay out stock lists of disinflation beneficiaries. reserves.
UBS UBS
The economic weakness we forecast is widespread but it is not deep. It Against long-term average global growth of 3.5%, the common signal
would be enough, however, to push unemployment 100 basis points across assets is pricing in 3% global growth. That’s sub-trend but not
higher in DM, and 200 basis points in the US (to 5.5%). Combined with recessionary. High-yield credit is most optimistic, equities less so. But a
inflation coming down rapidly in the coming quarters, that creates a deep dive within equities shows that even they are not priced for a
much stronger central bank pivot than is priced by the market: about recession yet. US equities are pricing in only a 41% probability of
200 basis points in DM cuts by mid-2024 (and nearly 400 basis points recession, compared to 80% in Europe (which is already in recession)
in the US). and 64% for China. The decline in stocks thus far can be fully explained

While a recession is a very real possibility, investors may be surprised by In our view, it is too early to pre-position for very negative economic
the resilience of the global economy – even with such a sharp tightening outcomes. A longer-lasting late cycle environment can persist for some
in financial conditions. The labor market will certainly cool, but healthy time, and investors will have to be flexible and discerning in 2023 given
household balance sheets should continue to support spending in the these potential dynamics.
services sector. Moreover, some of the major drags on the world
UniCredit UniCredit
We forecast a mild technical recession in both the US and the euro We forecast global GDP growth of 1.9% next year – a de facto global
zone, followed by a below-trend recovery. The risks to growth are 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 Vanguard
Our base case is a global recession in 2023 brought about by the Households, businesses, and financial institutions are in a much better
efforts to reduce inflation. 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.

In credit, valuations are fair, but the growing likelihood of recession and The dollar will stay stubbornly strong through the first half of 2023. The
declining profit margins skew the risks toward higher spreads. Although market is too sanguine the European/UK energy situation - deeper-
credit exposure can add volatility, its higher expected return than US than-expected recessions in euro zone/UK vs. resilient US growth
Treasuries and low correlation with equities validate its inclusion in keeps upward pressure on the broad dollar. By mid-year we call for
portfolios. EURUSD to return to parity and GBPUSD to reach 1.11.

Stagflation is the biggest macro risk, in our opinion, and central bank We expect a U.S. recession in the first half of 2023, as well as a
responses would be tough to predict. Some policymakers likely would continued global economic slowdown, as last year’s hawkish monetary
opt to put their economies into the deep freeze so they could squelch policy and money growth slowdown works with a lag. That should drive
inflation. down corporate earnings growth and create important inflection points
for investors over the next nine to 12 months.

Wells Fargo Investment Institute expects a recession in early 2023, Dollar strength early in the year should flatten and partially reverse its
recovery by midyear, and a rebound that gains strength into year-end. upward trajectory, as slowing inflation and Federal Reserve interest-rate
Nevertheless, full-year US economic growth and inflation targets may cuts in the second half of 2023 remove a key source of support.
reflect mostly the recession.
Wells Fargo Investment Institute

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

year basis by year-end 2023.

We expect earnings to contract in 2023 as the recession leads to We expect US Treasury yields to decline in 2023 as we go through an
declining revenues and profit margins. Valuations should rebound in economic recession and in anticipation of policy rate cuts from the Fed.
2023 to lift equity markets by year-end as early cycle dynamics begin to
take hold.
INFLATION

In Europe, the energy shock, compounded by inflationary pressures In the US, the Fed’s aggressive tightening has increased the risk of
related to the aftermath of the Covid crisis, remains the main dampener recession in the second half, while again failing to dent inflation.
on growth. The ensuing cost-of-living crisis will drag Europe into

This low growth-high inflation environment will spread to emerging Inflation will stay stubbornly high through most of 2023. Central banks
markets, with China the exception. Amundi has cut China’s GDP will continue their “whatever it takes” policy to avoid a 1970-style crisis.
forecast to 4.5% from 5.2%. That’s a lot better than China’s anemic Tightening has further to go, but at a slower pace than in 2022. The
growth levels of 2022 (3.2%) and is based on hopes of a stabilization in level of the Fed terminal rate will be critical, raising the odds of a US
the housing market and a gradual re-opening of the economy. recession if it ends up close to 6%.

Persistent inflation means higher allocation to real assets that are Differences between emerging markets will intensify in 2023. Countries
resilient to inflation, such as infrastructure. While private debt has with a more benign inflation and monetary outlook such as in Latin
started to reprice, it enjoys strong fundamentals for most parts, and real America and EMEA are attractive. A Fed pivot should boost the appeal
estate can be a good diversifier. of EM equities generally later in the year.

Long-term ESG themes will continue to benefit from the aftermath of A policy-induced recession looks like the price to pay to get inflation
the Covid-19 crisis and the Ukraine war. Investors should get exposure back under control after a peak in late 2022. While we are confident
to energy transition and food security, as well as re-shoring trends that by the middle of 2023 the world economy will start improving again,
provoked by geopolitics. Social themes will be back in focus, as the we would warn against any excessive enthusiasm. Beyond the cyclical
deteriorating labor market and inflation demand more attention to social recovery, many structural questions will remain unanswered.
factors.

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.

The Fed won’t want to cut rates as quickly as the market is currently With inflation, the dollar and Fed hawkishness peaking in the first half of
pricing (second half of 2023) since they will want to be satisfied that 2023, markets are expected to tolerate more risk later in the year. The
they have properly broken the back of inflation. The price to pay for this S&P 500 typically reaches its bottom six months ahead of the end of a
will be a recession in the first three quarters of 2023 in the US which recession, and as a result, bonds appear more attractive in the first half
will trigger the usual adverse ripple effects over the entirety of the world of 2023, while the backdrop for stocks should be better in the later half.
economy next year. Any recession looks set to be mild, though our US We expect the S&P to end the year at 4,000 and S&P earnings per
GDP outlook of -0.2% and 0.9% for 2023 and 2024 is lower than share to total $200 for the year.

After a volatile start to 2023, emerging markets should produce strong Inflation is unlikely to fall quickly in 2023, meaning that monetary policy
returns. Once inflation and rates peak in the US and China reopens, the will have to be restrictive, even with economies in recession. Europe’s
outlook for emerging markets should turn more favorable. China energy crunch and US sanctions on China are sources of particular
equities will likely strengthen due to a reversal in both zero-Covid and concern.
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property tightening.

The global economy looks set to enter a stagflationary phase: as Inflation will come down rapidly as pandemic and war-induced
Europe and the US contract, growth remains sluggish in China, but dislocations fade, the mix of spending between goods and services
inflation fades only gradually. Bringing inflation back to target, while normalizes, and the aggregate demand curve slides down the steep
output sinks and employment rises, will test central banks’ resolve. side of the aggregate supply curve in response to the lagged effects of
tighter financial conditions.

Global bond yields will move sideways in the first half of next year, as Gold will remain a desirable hedge against a variety of geopolitical risks,
the impact of falling inflation broadly offsets the impact of better-than- as well as the risk of a second wave of inflation. We are neutral on gold
expected growth data. Yields should drop modestly in the second half 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

Central bankers won’t ride to the rescue when growth slows in this new We are underweight nominal long-term government bonds in each
regime, contrary to what investors have come to expect. We see central scenario in this new regime. This is our strongest conviction in any
banks eventually backing off from rate hikes as the economic damage scenario. We think long-term government bonds won’t play their
becomes reality. We expect inflation to cool but stay persistently higher traditional role as portfolio diversifiers due to persistent inflation. And
than central bank targets of 2%. we see investors demanding higher compensation for holding them as
central banks tighten monetary policy at a time of record debt levels.

We see long-term drivers of the new regime such as aging workforces Despite a likely steep fall in inflation next year, stubborn price pressures
keeping inflation above pre-pandemic levels. We stay overweight look set to keep the US Federal Reserve and the European Central
inflation-linked bonds on both a tactical and strategic horizon as a Bank hiking into a recession in the first quarter of 2023.
result.

With Europe and the UK in or approaching recession, China slowing Output is likely to fall in 2023, with risks to the downside. Inflation will
sharply and the US “needing” one to bring inflation back to target, it is probably fall too, but relatively slowly, remaining above target for some
our belief that “Global Recession” remains our single most likely time, with risks to the upside. As a result, despite recession, interest
scenario – we give it a 60% probability. rates are set to rise further, though with risks to the downside. All this

Within fixed income, we prefer developed market sovereigns on the Inflation stays persistent in advanced economies - brought on by a
back of the nascent disinflationary trend, real policy rates nearing wage-price spiral in the US and prolonged upstream price pressure in
positive territory, and several central banks downshifting the pace of Europe. Fed responds hawkishly, with the ECB not far behind.
rate hikes. 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.


Recession odds increase significantly if Fed Chair Powell remains Outside of the US, the global economy is already in recession due to the
dogmatic on the need to create labor market slack. However, he has effects of the strong dollar and a very weak China. China has started to
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proven himself impressionable when it comes to the data. A pause in back away, slowly, from the policies that have been depressing activity.
rate hikes seems very probable, especially if the data show a steep and If the dollar corrects lower as the US economy decelerates and inflation
deep decline in inflation. retreats, and the US avoids a bust, the world economy could be
stabilizing by this time next year.

In addition to the favorable technical developments for bonds in 2023, US equities remain our biggest country underweight. We think there is
two potential disinflationary outcomes for the global economy also more bad news to come, and market expectations and valuations are
support fixed income, particularly if an investor’s time horizon is the still too optimistic. It is clear to everyone, except the central bankers,
entire year. We expect a job-killing recession is necessary to break that the Fed is on course for another major policy error. They may
inflation and get it close to central banks’ 2% target. That means there succeed in curing inflation but are also likely to seriously hurt the patient
will be meaningful weakness in the labor market globally. Under this in the process. We are content to stay defensive and underweight the
type of disinflationary bust, a typical recession, higher-quality sovereign US until valuations offer a greater margin of safety, or the Fed alters its
bonds are the best returners. monetary policy.
Carmignac Carmignac
We expect the US economy to enter a recession later this year but with In equity markets, while the drop in valuations appear broadly consistent
a much sharper and longer decline in activity than anticipated by the with a recessionary backdrop, there are wide disparities between
consensus. Faced with inflation, the Fed will have to create the regions - even more so on earnings. The eyes of global investors are
conditions for a real recession with an unemployment rate well above focused on Western inflation and growth dynamics. Looking towards
5%, compared with 3.5% today, which is not currently envisaged by the the East should prove salutary and offer most welcomed diversification.
consensus
Carmignac Citi
On the sovereign bond side, weaker economic growth is generally We are currently at a spot in the US business cycle where fears of
associated with lower bond yields. However, given the inflationary inflation and the Fed are fading, but fears of a recession are not yet
environment, while the pace of tightening may slow or even stop, it is pronounced enough to lead to downside in equity markets. As we enter
unlikely to reverse soon. 2023, we expect US recession fears to become the driver. We remain
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.

Our quant corner finds macro-economic conditions in stagflationary We need to get through a recession in the US that has not started yet.
territory and is bearish risky assets. Using our economic forecasts, next We believe that the Fed’s current and expected tightening will reduce
year could be brighter, as inflation is likely peaking and central bank nominal spending growth by more than half, raise US unemployment
hiking cycles more mature, setting the stage for overweights in credit above 5% and cause a 10% decline in corporate earnings. The Fed will
and bonds. likely reduce the demand for labor sufficiently to slow services inflation

We need to get through a deeper recession in Europe as it struggles Investors should not expect everything to go “back to normal” in 2023.
through a winter of energy scarcity and inflation. We also need to see a Higher inflation and a weaker economic environment will mean not all
sustained economic recovery in China, whose prior regulatory policies companies will thrive.

In 2023, we envision an environment of moderating but persistent price We remain cautious on longer-term US Treasuries in the coming months
pressures that will keep monetary policymakers on a steady, but less as persistently high inflation will likely lead to further volatility as
aggressive, tightening path. Our base case calls for mild recession early investors demand a higher-term premium. We believe shorter-dated
in the year and steady market interest rates. Treasuries, however, are closer to pricing in a peak for policy rates and
offer relatively attractive income opportunities.

Our outlook for 2023 remains uncertain and will hinge on whether the We believe inflation is set to fall meaningfully throughout the coming
Fed is able to rein in inflation while keeping us out of recession. But year as the economy slows due to the Fed’s aggressive interest rate
because the labor market continues to show strength, lending support hikes. We’ve already seen positive signs that drivers of inflation in key
to the consumer sector—the largest part of the economy—we are economic sectors have improved or rolled over. If that continues,
cautiously optimistic that the economy and markets will move in a without kicking off a recession, the Fed just may achieve its elusive soft
positive direction in the new year, though there may be some bumps landing.
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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.

As a result of the 2022 selloff, fixed income asset classes may now Going forward, it’s reasonable to believe the US dollar will remain strong.
offer some of the most attractive valuations we’ve seen in decades. The But an equally compelling argument could be made that its current
Fed has been very vocal about its goal of bringing inflation under strength will not be sustained throughout 2023. If the Fed cools down
control. If it meets its objective, which appears likely, interest rates inflation and curbs interest rate increases, investors could see the dollar
should stabilize, which could support a number of segments in the fixed stabilize—or possibly weaken—against other currencies. Several wild
income universe. 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.

Inflation is peaking in most countries as a result of decisive monetary With inflation likely to normalize in 2023, fixed-income assets should
policy action, and should eventually decline in 2023. Our key become more attractive to hold and offer renewed diversification
assumption is that it will remain above central bank targets in 2023 in benefits in portfolios. US curve “steepeners,” long-duration US
most major developed economies, including the US, the UK and the government bonds (over euro zone government bonds), emerging-
euro zone. We do not forecast interest-rate cuts by any of the market hard currency debt, investment grade credit and crossovers
developed market central banks next year. 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.

We read the Fed and ECB as being absolutely committed to bringing The current mix of aggressive central bank rate hiking to deal with
inflation back to desired levels within the next several years. Although elevated inflation, geopolitical uncertainty and elevated commodity
the costs in doing so may be lower than in the past, it will not be prices, and impending recession in the euro area and US has been a
possible to do so without at least moderate economic downturns in the toxic mix for emerging markets. We see this sector remaining under
US and Europe, and significant increases in unemployment. pressure well into 2023, but then beginning to trend more positive later

The current mix of aggressive central bank rate hiking to deal with We think the Fed and ECB will succeed in their missions as they stick to
elevated inflation, geopolitical uncertainty and elevated commodity their guns in the face of what is likely to be withering public opposition
prices, and impending recession in the euro area and US has been a as unemployment mounts. The moderate cost of doing so now will be
toxic mix for emerging markets. We see this sector remaining under much lower than failing to do so and having to deal with a more severely
pressure well into 2023, but then beginning to trend more positive later ingrained inflation problem down the road. Doing so now will also set
in the year as inflation begins to recede and central bank policy begins the stage for a more sustainable economic and financial recovery into
to reverse both domestically and by the Fed. 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 DWS
Inflation rates are expected to fall in 2023 but will still remain at a high On the corporate side, profits are likely to come under pressure, but
level – 6% in the euro zone and 4.1% in the US. 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 Fidelity
Rates should eventually plateau, but if inflation remains sticky above 2%, In the US, the Fed appears set on raising rates significantly beyond
they are unlikely to reduce quickly even if banks take other measures to neutral levels to bring inflation under control. We do not expect a pivot
31 of 115 09/01/2023, 10:00 a.m.

maintain liquidity and manage increasingly challenging debt piles. 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 Fidelity
We have repeatedly argued that the financial system cannot take Inflation is likely to moderate, but we expect it will do so gradually.
positive real rates for any material length of time (due to high levels of Indeed, structural trends such as decarbonisation, deglobalization, and
debt) before financial stability becomes an issue. Given liquidity and the process of dealing with high debt levels are likely to keep up the
assets are already under considerable pressure, the system could start inflationary pressure over the coming years.
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

Our base case is inflation will further recede as supply chain pressures The impact of inflation on listed infrastructure in 2023 should be muted,
ease and central banks will remain committed to tighter policy. However, particularly for regulated assets, which often have inflation adjustment
the result of this policy is likely to be a slowing of the economy. 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.

recovery.

The US should narrowly avoid recession as core PCE inflation slows The euro area and the UK are probably in recession, mainly because of
from 5% now to 3% in late 2023 with a 0.5 percentage point rise in the the real income hit from surging energy bills. But we expect only a mild
unemployment rate. To keep growth below potential amidst stronger downturn as Europe has already managed to cut Russian gas imports
real income growth, we now see the Fed hiking to a peak of 5-5.25%. without crushing activity and is likely to benefit from the same post-
We don’t expect cuts in 2023. pandemic improvements that are helping avoid US recession. Given

After a sharp increase in bond yields this year, new and potentially less Markets are now pricing in a more dovish Federal Reserve, signalling an
risky alternatives are emerging in fixed income: US investment grade expectation that the US central bank will begin lowering its funds rate
corporate bonds yield almost 6%, have little refinancing risk and are by the end of next year. Our economists, by contrast, don’t expect any
relatively insulated from an economic downturn. Investors can also lock rate cuts in 2023. If the US economy turns out to be more resilient than
in attractive real (inflation-adjusted) yields with 10-year and 30-year anticipated and inflation stickier in 2023, stock markets and Treasuries
Treasury inflation protected securities (TIPS) close to 1.5%. could fall in price.

With inflation still running hot, central banks are more likely to try to cool We see potential for bonds to be less positively correlated with equities
economic growth and tighten financial conditions than to boost them. later in 2023 and provide more diversification benefits. But until central
And if they don’t fight inflation, there’s a risk that longer-dated bond banks stop hiking and inflation normalizes further, they are unlikely to be
yields will increase anyway because of rising long-term inflation a reliable buffer for risky assets.
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
32 of 115 09/01/2023, 10:00 a.m.

inflation protection.
HSBC HSBC
We think markets have become too complacent both in regard to the Diversification benefits are very scarce in an environment that is driven
inflation and Fed outlook and the growth outlook. Virtually all of our so much by one single factor (inflation/the Fed). One of the only asset
cyclical leading indicators are still pointing to much more weakness on classes that has a high-enough loss threshold in both a recession and a
the growth side in the coming two to three quarters. The point here is sticky inflation/labor market scenario is probably investment-grade
that these signals are no longer confined to just one particular area of credit.

Our “house view” continues to reflect an overall cautious stance. We do Inflation should still be persistently high for much of 2023, and on the
not advocate an aggressive use of risk budgets. 2023 is going to be a back of rapid tightening by the Federal Reserve we are forecasting a
year about the macro cycle. We have likely reached peak central bank recession for the US in 2023 - a corporate profits recession in the first
hawkishness as the headline inflation rates begin to cool and given the half of the year, followed by a GDP recession.
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.

A turnaround could follow later in the year amid cooling inflation - aided The good news is that central banks will likely be forced to pivot and
by weaker labor and housing markets - which means central banks can signal cutting interest rates sometime next year, which should result in a
pause rate hikes, with even the prospect of rate cuts later in the year. sustained recovery of asset prices and subsequently the economy by
With better visibility on the policy and economic outlook, investor the end of 2023. The bad news is that in order for that pivot to happen,
sentiment will recover from rock bottom levels to take advantage of we will need to see a combination of more economic weakness, an
much improved valuations in riskier asset classes such as equities and increase in unemployment, market volatility, decline in levels of risky
high-yield corporate bonds. assets and a fall in inflation.
JPMorgan JPMorgan
The global growth outlook remains depressed, but we do not see the Global consumer price index (CPI) inflation is on track to slow toward
global economy at imminent risk of sliding into recession, as the sharp 3.5% in early 2023 after approaching 10% in the second half of 2022.
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.

Despite remaining above central bank targets, inflation should start to Inflation may not be heading back quickly to 2%, but we suspect that
moderate as the economy slows, the labor market weakens, supply the central banks will be happy to pause, so long as inflation is headed
chain pressures continue to ease and Europe manages to diversify its in the right direction.
energy supply.

Looking forward, it is clear that the income on offer from bonds is now Given this uncertainty about inflation and growth, and the chunky yields
far more enticing. The global government bond benchmark has seen available in short-dated government bonds, investors might want to
yields rise by roughly 200 basis points since the start of the year, while spread their allocation along the fixed income curve, taking more
high-yield bonds are again worthy of such a title with yields approaching duration than we would have advised for much of the year.
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.

As supply chain pressures ease and aggregate demand weakens, Investors are likely to continue to be attracted to equity investments
inflation is likely to moderate during 2023 but also remain above central that are defensive, have high yields, and offer inflation protection.
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bank targets of about 2%. Infrastructure has all these traits in spades.

Bond yields rose considerably in 2022, offering attractive valuations and Within credit, fundamentals remain strong in both investment grade and
strong protection levels for investors in investment grade, high yield high yield markets. However, we are entering an uncertain
markets, and developed world sovereigns. However, in Macquarie Asset macroeconomic environment with the impact from inflationary cost
Management’s view, a defensive position is warranted given the pressures and deteriorating growth likely to lead to weaker
potential for recessions and inflation to undermine the strong start to fundamentals. Against this backdrop, we believe defensive positioning
2023. 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 Morgan Stanley

Bonds — the biggest losers of 2022 — could be the biggest winners in European equities could offer a modest upside, with a forecasted 6.3%
2023, as global macro trends temper inflation next year and central total return over 2023 as lower inflation nudges stock valuations higher.
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.

Valuations are clearly cheap, and cyclical winds are shifting in favor of Whilst there are some tentative hints that policymakers are becoming
emerging markets as global inflation eases more quickly than expected, less hawkish, we do not expect any policy “pivot” (i.e. rate cuts) in 2023.
the Fed stops hiking rates and the dollar declines. The MSCI EM, an The scale and persistence of the inflation overshoot in 2022 is likely to
index of mid and large-cap companies in 24 emerging markets, could have resulted in reaction functions becoming more reactive for policy
see 12% price returns in 2023. EM debt could benefit from a easing. Policy rate cuts in the US, euro area and UK are not expected
combination of trends. Fixed-income strategists forecast a 14.1% total until 2024.
return for emerging market credit, driven by a 5% excess return and a
9.1% contribution from falling Treasury yield.
NatWest NatWest
Any acceleration in growth will be somewhat back-loaded and gradual in 2023 is forecast to see significant falls in inflation as the energy shock
the coming year. Growth is forecast to regain momentum in 2024 as unwinds, though we expect CPI to continue to overshoot targets in the
inflation pressures recede and central banks ease monetary policy, US, euro area and UK. The energy unwind is a necessary, but not a
albeit cautiously. sufficient, condition for inflation to return sustainably to target.
NatWest NatWest
Raging inflation could have a damaging impact on the financial condition Europe is already in recession. Inflation will slow and the ECB will slow
of many leveraged corporations in the leveraged asset class. Bond and with it. But inflation risks are on the high side. A second phase of
loan prices already reflect much of the stress that could have a material inflation, permitted by recovery in the second half, is more likely than a
impact on credit metrics. Investors should be mindful of the inevitable downturn that leads to rate cuts. Bearish risks to longer-term rates form
interest rate pivot from central banks. a long list. We target 2.75% in 10-year bunds. This contrasts with our US
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 Ned Davis Research

Continued adjustment to pandemic imbalances, tight labor markets, and Bonds could easily rally through yield support levels on evidence of
the risk of further supply shocks (either geopolitical or weather related) recession, slowing inflation, and shifting policy. We raised our bond
will likely see inflation rates remain above central bank targets through exposure to 100% of benchmark duration and are neutral on the yield
the end of 2023, indicating pivots are unlikely in the near-term. curve. We are overweight Treasuries and MBS and underweight high
yield, ABS and TIPS. We are marketweight everything else.

We think the next 12 months are likely to see this cycle’s peaks in global Consensus earnings growth estimates for 2023 did not fall in the same
34 of 115 09/01/2023, 10:00 a.m.

inflation, central bank policy tightening, core government bond yields way as real GDP growth estimates, perhaps because high inflation has
and market volatility, as well as troughs in GDP growth, corporate supported nominal GDP growth. As inflation turns downward but
earnings growth and global equity market valuations. But we do not remains relatively high as the economy slows, we think earnings
believe this will mark a reversion to the post-2008 “new normal”. We estimates are likely to be revised down. We also think dispersion will
see structural forces behind persistently higher inflation — and increase, favoring companies that are less exposed to labor and
therefore a persistently higher neutral interest rate, a higher cost of commodity costs and have more pricing power to maintain margins, and
capital and lower asset valuations. use less aggressive earnings accounting. We believe this will translate

Northern Trust expects 2023 to be a turbulent year as conditions pivot We are equal-weight inflation-linked bonds on the basis that central
from inflation and monetary policy fears to a weak global economy, but banks have the tools and perceived willingness to contain inflation, but
the firm also expects market volatility to somewhat temper due to lower that this is mostly reflected in valuations and the path back toward
inflation and a pause in central bank interest rate increases. A reduction target levels may prove difficult.

We are neutral duration risk. In 2023 we expect Fed rate hikes to total We expect the all-too-familiar headwinds of 2022 (persistent inflation,
0.50% to 0.75%, to reach a steady policy rate of 5%, likely sufficiently rising yields, hawkish central banks and a rocky geopolitical landscape)
high for a Fed pause. Treasury yields are likely move slightly higher but to drive volatility and uncertainty through the start of next year.
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
US.
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 Nuveen
Geographically, we prefer US stocks (especially large caps) relative to Perhaps our highest-conviction collective view is our preference for
other markets, as they offer better opportunities for both defensive infrastructure investments, particularly public infrastructure. Regulated
positioning and growth. Across market sectors, we like healthcare as a utility revenue tends to be relatively decoupled from the economy and
relatively stable area and see opportunities in REITs, which offer a can experience growth from rising capital costs and policies related to
combination of solid fundamentals and attractive valuations. We also energy transition and the Inflation Reduction Act.
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.

Dollar weakness. Slower growth. A big drop in inflation. Muted equities. At the same time, we expect inflation to slow sharply, from a global peak
Bullish bonds. And a China rebound. All of this spells out the need for of 8.3% to 3.5% by the end of 2023. That will be enough for major
investors to remain cautious on risk assets – particularly through the central banks to end their tightening cycles, led by the US Federal
first half of the year. 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 Pimco
As we navigate a period of elevated inflation and an economic Our base case of an economic slowdown or recession would bring
slowdown, our starting point is one of caution. Pimco’s business cycle demand destruction and ease inflationary pressures, which also implies
models forecast a recession across Europe, the UK, and the US in the that the US Fed funds rate may peak in early 2023.
Pimco Principal Asset Management

As a recession begins and inflation slows, duration is likely the first 2023 is sizing up to be a better year for some segments of the market
asset class to be poised for outperformance, especially in rate-sensitive than 2022. Inflation and central bank policy will likely continue being a
countries like Australia and Canada as well as select emerging markets key focus for investors. Yet, while persistently restrictive monetary
that are ahead in the hiking cycle. policy and the resulting US recession will weigh on the broad equity
real assets.
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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 Robeco
We think that the belief in central bankers’ ability to prevent cyclical With core inflation still well above target in the first half of 2023, central
downturn is flawed. Instead, we expect a hard landing. Risks are tilted to bankers will likely stretch the pause after the hiking cycle and be
the downside for the 2023 consensus of US annual real GDP growth of reluctant to cut interest rates, even in the face of a US recession.
0.8%. As recessions tend to be highly disinflationary, we believe this will
take the sting out of inflation.
Robeco Schroders
For the euro zone, the consensus of 0.4% real GDP growth in 2023 is Investment-grade credit and short-term high-yield bonds with sound
fairly consistent with leading indicators like decelerating broad money fundamentals can be two sensible choices for exposure in investment
growth in the region. But we flag the risk of excess tightening by the portfolios in the year ahead. In addition, US TIPS can be included as a
ECB, especially to get imported inflation under control. tool for protection against inflation.

The impact of tighter monetary policy is likely to be reflected in While aggressive Fed policy has led to some improvement, defeating
lackluster earnings. Inflation has likely peaked already, and the inflation will take some time.
trajectory of monetary policy is unlikely to be more hawkish than what
the market is currently pricing in, in our view.
State Street T. Rowe Price

Although markets are projecting rates to decline by late 2023, central The global economy has passed from decades of declining interest
banks are likely to remain plenty aggressive in the near term. Until the rates into a new regime marked by persistent inflationary pressures and
Fed’s battle against inflation turns less aggressive, the elevated yields in higher rates. Regime change clearly presents risks. But markets may
defensive short-duration sectors may help investors balance income have overreacted to some of those risks in 2022, creating attractive
and total return in order to preserve capital. 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.

Cheaper valuations reflect the current challenges from high inflation, US investment grade yields could peak in the first half of 2023 as
recession risks, and an energy crisis in Europe. An easing of these inflation cools, allowing the Fed to moderate policy. Slowing growth and
headwinds and continued fiscal support could provide upside over the inflation could support longer-duration bonds. Credit may prove resilient
course of 2023. Valuations are compelling, but high energy costs and thanks to strong fundamentals.
TD Securities TD Securities
2023 will see a balancing act from central banks, as they maintain We expect a decline in long end rates of global bond curves; the front
restrictive policy to bring inflation down against a backdrop of end should be anchored by hawkish central banks paralyzed by still too-
recessions across most of the G-10. Inflation remains above target all high inflation.
year, and we anticipate a global recession.

We estimate inflation will trend towards 3%-4%, as measured by the Historically, earnings around recessions have averaged a drop of almost
Consumer Price Index. A slowing economy should result in easing 20%. We don’t necessarily believe that earnings have to fall that far
inflation, albeit remaining above the pre-pandemic range. given how well corporations have navigated the pandemic and the fact
that elevated inflation raises nominal sales figures, but there remains
downside risk.
36 of 115 09/01/2023, 10:00 a.m.

The Fed will likely finish raising rates in the first half of 2023, with the In the coming year, we expect inflation fears to evolve into growth
Fed funds rate reaching roughly 5%. The Fed’s singular focus on curbing concerns, particularly in Europe. The European Central Bank will likely
generationally-high inflation will continue next year, likely holding policy be less aggressive in their policy response given Europe’s challenging
rates at elevated levels until core inflation and job creation ease macro backdrop. This would cap upward moves in euro zone yields. As
markedly and consistently. a result, strong foreign demand for the relative yield advantage and
UBS
year.
UBS UBS
The economic weakness we forecast is widespread but it is not deep. It The negative payoff from getting our disinflation call wrong is large. The
would be enough, however, to push unemployment 100 basis points sweetest spot for market valuations (high), volatility (low) and bond
higher in DM, and 200 basis points in the US (to 5.5%). Combined with equity correlations (negative) has been when core inflation was around
inflation coming down rapidly in the coming quarters, that creates a the third decile of its 50-year distribution, an average rate of 1.8% year-
much stronger central bank pivot than is priced by the market: about on-year. That is roughly where we expect it to land in 2024. If we’re
200 basis points in DM cuts by mid-2024 (and nearly 400 basis points wrong, and it lands, say, at the sixth decile (about 2.8%), the valuation
in the US). 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 UBS
If inflation is meaningfully higher (100 basis points) than our forecast, We expect inflation to ease and therefore see the bond-equity
global growth would be 50-70 basis points lower and policy rates 100 correlation normalizing, but equity returns themselves should be
basis points higher (160 basis points in DM). A global housing downturn modest. We calculate equity-bond allocations based on risk parity,
does more damage (110 basis points additional downside to growth). active risk parity and simple mean variance approaches. The
Rapid de-escalation of the Russia/Ukraine war would add about 0.5 recommended equity-bond portfolio is much closer to 35-65 than
percentage points to our global growth forecast. 60-40.
UBS Asset Management UniCredit

We are neutral on government bonds. The Fed is likely to be slow in Inflation is set to decelerate meaningfully in 2023. The Fed and the ECB
ending or reversing its hiking cycle as long as the US labor market are likely to finish their tightening cycle by early next year and to start
bends but does not break, while signs that overall inflation has peaked cutting rates in 2024.
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 UniCredit
The ongoing sharp monetary tightening and upcoming recession pose Long-dated yields are likely to be close to their peaks. Convincing
significant downside risks. However, evidence of slowing core inflation, signals that inflation is easing will give central banks a green light to rein
peaking official rates and signs of economic recovery would pave the in some of the recent tightening, leading to a bull market revival and
way for more risk taking in the second half. curve steepening.
Vanguard
Our base case is a global recession in 2023 brought about by the
efforts to reduce inflation.
Vanguard Vanguard
Growth is likely to end 2023 flat or slightly negative in most major We don’t believe that central banks will achieve their targets of 2%
economies outside of China. Unemployment is likely to rise over the inflation in 2023, but they will maintain those targets and look to achieve
year but nowhere near as high as during the 2008 and 2020 downturns. them through 2024 and into 2025 — or reassess them when the time is
Through job losses and slowing consumer demand, a downtrend in right.
inflation is likely to persist through 2023.
Wells Fargo Wells Fargo

Our base case scenario is for the Federal Reserve to deliver a bit more Stagflation is the biggest macro risk, in our opinion, and central bank
tightening than what the market is pricing. Meanwhile, we expect the responses would be tough to predict. Some policymakers likely would
Bank of England and European Central Bank to not hike as much as opt to put their economies into the deep freeze so they could squelch
37 of 115 09/01/2023, 10:00 a.m.

implied by the market. Inflation falls fairly quickly in the US, and but inflation.
drops even faster in several other large economies. US core CPI drops
below 3% annualized, but with a wide confidence interval around this
forecast.

The ECB and BOE have already shown more concern for slowing We expect a U.S. recession in the first half of 2023, as well as a
growth vs. high inflation, and seem more inclined to pivot away from continued global economic slowdown, as last year’s hawkish monetary
inflation fighting in a stagflation scenario. In contrast, the Fed’s bar for policy and money growth slowdown works with a lag. That should drive
pivoting seems higher. Private debt has been more contained in the US down corporate earnings growth and create important inflection points
relative to its peers, but debt has still risen sharply over the last few for investors over the next nine to 12 months.
decades.

Wells Fargo Investment Institute expects a recession in early 2023, We believe that a recession and unwinding inflationary shocks of the
recovery by midyear, and a rebound that gains strength into year-end. past 18 months will allow inflation to decline to under 3% on a year-over-
Nevertheless, full-year US economic growth and inflation targets may year basis by year-end 2023.
reflect mostly the recession.
MONETARY POLICY
38 of 115 09/01/2023, 10:00 a.m.


In the US, the Fed’s aggressive tightening has increased the risk of Inflation will stay stubbornly high through most of 2023. Central banks
recession in the second half, while again failing to dent inflation. 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%.

“Bonds are back” with a focus on high-quality credit, while paying A policy-induced recession looks like the price to pay to get inflation
attention to FX in a world of diverging policies, as well as to liquidity back under control after a peak in late 2022. While we are confident
risks and corporate leverage. that by the middle of 2023 the world economy will start improving again,

The Fed won’t want to cut rates as quickly as the market is currently For now, it is an environment that supports exposure to the shorter
pricing (second half of 2023) since they will want to be satisfied that maturity part of bond markets. Such strategies currently provide the
they have properly broken the back of inflation. The price to pay for this highest yields seen for years. Extending duration along the curve also
will be a recession in the first three quarters of 2023 in the US which locks in better yield and provides optionality to recognize capital gains
will trigger the usual adverse ripple effects over the entirety of the world once markets start to anticipate central banks easing. Our base case is
economy next year. Any recession looks set to be mild, though our US that this is unlikely until late 2023 or 2024, but markets tend to look
GDP outlook of -0.2% and 0.9% for 2023 and 2024 is lower than forward to these events.

With inflation, the dollar and Fed hawkishness peaking in the first half of A recession is all but inevitable in the US, euro area and UK. Expect a
2023, markets are expected to tolerate more risk later in the year. The mild US recession in the first half of 2023 with a risk that it starts later.
S&P 500 typically reaches its bottom six months ahead of the end of a Europe likely sees recession this winter with a shallow recovery
recession, and as a result, bonds appear more attractive in the first half thereafter as real incomes and likely overtightening pressure demand.
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
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.

After a volatile start to 2023, emerging markets should produce strong The end of Fed hikes and more conservative corporate balance sheet
returns. Once inflation and rates peak in the US and China reopens, the management lead to a positive backdrop for credit: Weaker prospects
outlook for emerging markets should turn more favorable. China for growth and higher rates lead managements to shift prioritization to
equities will likely strengthen due to a reversal in both zero-Covid and debt reduction from share buybacks and capex. Total returns of
property tightening. approximately 9% are expected in investment grade credit in 2023 in
Barclays Barclays
This year’s aggressive rate hikes should hit the world economy mainly in Inflation is unlikely to fall quickly in 2023, meaning that monetary policy
2023. We expect advanced economies to slip into recession, and we will have to be restrictive, even with economies in recession. Europe’s
forecast global growth at just 1.7%, one of the weakest years for the energy crunch and US sanctions on China are sources of particular
world economy in 40 years. We recommend bonds over stocks, as well concern.
as a healthy allocation to cash.

We recommend bonds over stocks; equities are likely to bottom out only Inflation will come down rapidly as pandemic and war-induced
in the first half next year. The Fed funds rate is headed over 4.5%, so dislocations fade, the mix of spending between goods and services
cash is a low-risk alternative that should drag on financial market normalizes, and the aggregate demand curve slides down the steep
valuations. side of the aggregate supply curve in response to the lagged effects of
tighter financial conditions.

The new regime of greater macro and market volatility is playing out. A Central bankers won’t ride to the rescue when growth slows in this new
39 of 115 09/01/2023, 10:00 a.m.

recession is foretold; central banks are on course to overtighten policy regime, contrary to what investors have come to expect. We see central
as they seek to tame inflation. This keeps us tactically underweight banks eventually backing off from rate hikes as the economic damage
developed market equities. We expect to turn more positive on risk becomes reality. We expect inflation to cool but stay persistently higher
assets at some point in 2023 – but we are not there yet. And when we 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

Despite a likely steep fall in inflation next year, stubborn price pressures We see the first quarter of 2023 as a turning point for US and euro zone
look set to keep the US Federal Reserve and the European Central government bond markets due to peaks in both central-bank policy
Bank hiking into a recession in the first quarter of 2023. rates and net supply net of QE/QT. In terms of fundamentals, the global
growth downturn and disinflation point to lower yields throughout 2023.

Output is likely to fall in 2023, with risks to the downside. Inflation will Is it time to call the bottom and go overweight equities? According to
probably fall too, but relatively slowly, remaining above target for some our outlook – no. There’s a stronger case for increasing allocations to
time, with risks to the upside. As a result, despite recession, interest fixed income, which does well in a couple of diametrically opposed
rates are set to rise further, though with risks to the downside. All this circumstances: first, if there’s a soft landing and rates don’t have to rise
stands in stark contrast to the “soft landing” narrative. nearly as much as markets currently expect. Or second, if rates do rise
eventually fall.

Within fixed income, we prefer developed market sovereigns on the Inflation stays persistent in advanced economies - brought on by a
back of the nascent disinflationary trend, real policy rates nearing wage-price spiral in the US and prolonged upstream price pressure in
positive territory, and several central banks downshifting the pace of Europe. Fed responds hawkishly, with the ECB not far behind.
rate hikes. Tightening financial conditions and erosion of real incomes results in a
or two later.

Recession odds increase significantly if Fed Chair Powell remains We favor having more duration exposure in Treasuries as there is more
dogmatic on the need to create labor market slack. However, he has relative tightening of financial conditions in the US than in European
proven himself impressionable when it comes to the data. A pause in bonds or Japanese government bonds.
rate hikes seems very probable, especially if the data show a steep and
deep decline in inflation.

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 Carmignac

US equities remain our biggest country underweight. We think there is We expect the US economy to enter a recession later this year but with
more bad news to come, and market expectations and valuations are a much sharper and longer decline in activity than anticipated by the
still too optimistic. It is clear to everyone, except the central bankers, consensus. Faced with inflation, the Fed will have to create the
that the Fed is on course for another major policy error. They may conditions for a real recession with an unemployment rate well above
succeed in curing inflation but are also likely to seriously hurt the patient 5%, compared with 3.5% today, which is not currently envisaged by the
in the process. We are content to stay defensive and underweight the consensus
US until valuations offer a greater margin of safety, or the Fed alters its
monetary policy.
Carmignac Citi
On the sovereign bond side, weaker economic growth is generally We are currently at a spot in the US business cycle where fears of
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associated with lower bond yields. However, given the inflationary inflation and the Fed are fading, but fears of a recession are not yet
environment, while the pace of tightening may slow or even stop, it is pronounced enough to lead to downside in equity markets. As we enter
unlikely to reverse soon. 2023, we expect US recession fears to become the driver. We remain
Citi Citi
We think that the Fed will keep going, even if at a shallower pace, which The hurdle for the Fed to pause is obviously lower than for the Fed to
in the end means that the peak in US rates may only come in early cut. And duration will trade well when the Fed is almost done hiking.
2023, rather than being already in. We also think that recession fears Cuts will not be required. As such we are closer to buying bonds than
should eventually undermine risky assets again, especially in the US. buying equities. But for now we remain neutral on US rates, and instead
buy in EM.
Citi Citi
We prefer EM rates because there are several central banks that are Our quant corner finds macro-economic conditions in stagflationary
already or almost done hiking, and will eventually cut, which is the sweet territory and is bearish risky assets. Using our economic forecasts, next
spot in the cycle. While US rates are still going up, this is a “B trade”, year could be brighter, as inflation is likely peaking and central bank
rather than an “A trade”. hiking cycles more mature, setting the stage for overweights in credit
and bonds.

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.

We need to get through a recession in the US that has not started yet. When the Fed does finally reduce rates for the first time in 2023 – an
We believe that the Fed’s current and expected tightening will reduce event that we expect after several negative employment reports – it will
nominal spending growth by more than half, raise US unemployment do so at a time when the economy is already weakening. We think this
above 5% and cause a 10% decline in corporate earnings. The Fed will will mark a turning point that will portend the beginning of a sustained
likely reduce the demand for labor sufficiently to slow services inflation economic recovery in the US and beyond over the coming year.

We expect that as 2023 progresses, opportunities to increase portfolio In our view, 2023 will potentially be a great vintage for alternative
risk will evolve. Once interest rates peak, we will likely shift toward non- investments. Higher interest rates have caused a repricing of private
cyclical growth equities. These have already repriced lower, and we assets amid much higher borrowing costs. As such, specialist managers
expect them to begin performing once more before cyclicals. will be able to deploy capital into areas of distress and illiquidity.

In 2023, we envision an environment of moderating but persistent price We expect a retest of the October lows (around 3,500) in the S&P 500
pressures that will keep monetary policymakers on a steady, but less Index, before investors price in a policy response and begin discounting
aggressive, tightening path. Our base case calls for mild recession early recovery in late 2023 and early 2024. This scenario should experience
in the year and steady market interest rates. 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.

We remain cautious on longer-term US Treasuries in the coming months In the municipal bond space, we favor investment grade over high yield
as persistently high inflation will likely lead to further volatility as offerings, particularly given their attractive tax-equivalent yields. The
investors demand a higher-term premium. We believe shorter-dated market for mortgage-backed securities, however, faces further
Treasuries, however, are closer to pricing in a peak for policy rates and challenges due to the combination of a tighter Fed, rising mortgage
offer relatively attractive income opportunities. 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
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In 2023, we look for a resumption of US dollar strength and a renewed We believe inflation is set to fall meaningfully throughout the coming
bid for oil as geopolitical tensions remain elevated. Commodities year as the economy slows due to the Fed’s aggressive interest rate
including copper and gold are unlikely to gain traction until the Fed’s hikes. We’ve already seen positive signs that drivers of inflation in key
tightening campaign abates. economic sectors have improved or rolled over. If that continues,
without kicking off a recession, the Fed just may achieve its elusive soft
landing.

As a result of the 2022 selloff, fixed income asset classes may now Going forward, it’s reasonable to believe the US dollar will remain strong.
offer some of the most attractive valuations we’ve seen in decades. The But an equally compelling argument could be made that its current
Fed has been very vocal about its goal of bringing inflation under strength will not be sustained throughout 2023. If the Fed cools down
control. If it meets its objective, which appears likely, interest rates inflation and curbs interest rate increases, investors could see the dollar
should stabilize, which could support a number of segments in the fixed stabilize—or possibly weaken—against other currencies. Several wild
income universe. cards need to be considered, including the ongoing war in Ukraine,
did in 2022.

We expect the euro zone and UK to have slipped into recession, while Inflation is peaking in most countries as a result of decisive monetary
China is in a growth recession. These economies should bottom out by policy action, and should eventually decline in 2023. Our key
mid-2023 and begin a weak, tentative recovery – a scenario that rests assumption is that it will remain above central bank targets in 2023 in
on the crucial assumption that the US manages to avoid a recession. most major developed economies, including the US, the UK and the
Economic growth will generally remain low in 2023 against the euro zone. We do not forecast interest-rate cuts by any of the
backdrop of tight monetary conditions and the ongoing reset of developed market central banks next year.
geopolitics.

We see 2023 as a tale of two halves. Markets are likely to first focus on The dollar looks set to remain supported going into 2023 thanks to a
the “higher rates for longer” theme, which should lead to a muted equity hawkish US Federal Reserve and increased fears of a global recession.
performance. We expect sectors and regions with stable earnings, low It should stabilize eventually and later weaken once US monetary policy
leverage and pricing power to fare better in this environment. Once we becomes less aggressive and growth risks abroad stabilize. We expect
get closer to a pivot by central banks away from tight monetary policy, emerging market currencies to remain weak in general.
we would rotate toward interest-rate-sensitive sectors with a growth tilt.
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.

We read the Fed and ECB as being absolutely committed to bringing The current mix of aggressive central bank rate hiking to deal with
inflation back to desired levels within the next several years. Although elevated inflation, geopolitical uncertainty and elevated commodity
the costs in doing so may be lower than in the past, it will not be prices, and impending recession in the euro area and US has been a
possible to do so without at least moderate economic downturns in the toxic mix for emerging markets. We see this sector remaining under
US and Europe, and significant increases in unemployment. pressure well into 2023, but then beginning to trend more positive later

We think the Fed and ECB will succeed in their missions as they stick to We see the risks still weighted toward more severe recessions being
their guns in the face of what is likely to be withering public opposition needed to get the disinflation job done successfully, and we assume the
as unemployment mounts. The moderate cost of doing so now will be Fed and ECB will be up to the task if needed.
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
2024.
DWS DWS
We think central banks will keep interest rates high for longer than We expect the US Federal Reserve to raise key interest rates to
markets currently expect. 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.
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Fidelity Fidelity
Markets want to believe that central banks will blink and change Rates should eventually plateau, but if inflation remains sticky above 2%,
direction, negotiating the economy towards a soft landing. But in our they are unlikely to reduce quickly even if banks take other measures to
view, a hard landing remains the most likely outcome in 2023. A 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 Fidelity
In the US, the Fed appears set on raising rates significantly beyond We have repeatedly argued that the financial system cannot take
neutral levels to bring inflation under control. We do not expect a pivot positive real rates for any material length of time (due to high levels of
until there is a meaningful deterioration in hard data, especially inflation debt) before financial stability becomes an issue. Given liquidity and
and the labor market. Although we do not expect it soon, when it does assets are already under considerable pressure, the system could start
arrive, it should boost risky assets such as equities and credit, as well as to crack. There is a risk that if the Fed stays true to its current word and
government bonds. doesn’t stop until inflation is back near 2%, a “standard” recession could

As the tightening cycle slows and rates stabilize, opportunities in real Our base case is inflation will further recede as supply chain pressures
estate should begin to emerge for investors prepared to take them. 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.

Expensive equity prices and the potential for a peak in interest rates Bonds will likely rally as the US Federal Reserve achieves its goals,
have been driving a preference toward fixed income. We expect whether the US economy’s landing is soft or hard. Equities are less likely
investors to search for quality and perhaps increase duration in 2023. to perform as well — unless the landing is soft. Otherwise, falling profits
Extending duration may provide compelling income opportunities, and will offset falling bond yields and equities are unlikely to advance. That
US Treasuries could be the core for building duration. outcome is also a recipe for elevated equity volatility.
Franklin Templeton Generali Investments

Historically, US commercial real estate investment has performed We see the Fed peak at 5% in March, but the risks lie towards the Fed
favorably in periods of rising interest rates and inflation. Current macro hiking more as consumer demand and capex initially prove resilient. We
risks and market dislocations may create attractive buying opportunities do not see Fed rate cuts before the fourth quarter, i.e. not as fast as the
over the next 12–18 months in some sectors of commercial real estate. 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%.

The fundamentally overvalued dollar is past peak. The Fed’s final hike The US should narrowly avoid recession as core PCE inflation slows
looming for early spring 2023 is set to reduce rates uncertainty (a from 5% now to 3% in late 2023 with a 0.5 percentage point rise in the
previous dollar boost) and path the way to narrowing yield gaps vs unemployment rate. To keep growth below potential amidst stronger
major peers. Initially, the transition is likely to prove volatile, though. The real income growth, we now see the Fed hiking to a peak of 5-5.25%.
euro is still to feel the pain from recession and the energy crunch, We don’t expect cuts in 2023.

The euro area and the UK are probably in recession, mainly because of Markets are now pricing in a more dovish Federal Reserve, signalling an
43 of 115 09/01/2023, 10:00 a.m.

the real income hit from surging energy bills. But we expect only a mild expectation that the US central bank will begin lowering its funds rate
downturn as Europe has already managed to cut Russian gas imports by the end of next year. Our economists, by contrast, don’t expect any
without crushing activity and is likely to benefit from the same post- rate cuts in 2023. If the US economy turns out to be more resilient than
pandemic improvements that are helping avoid US recession. Given anticipated and inflation stickier in 2023, stock markets and Treasuries
reduced risks of a deep downturn and persistent inflation, we now could fall in price.

In the near term, bonds could remain more of a source of risk than of With inflation still running hot, central banks are more likely to try to cool
safety: policy rates could end up going higher, and staying there longer, economic growth and tighten financial conditions than to boost them.
than investors are prepared for. 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 HSBC

We see potential for bonds to be less positively correlated with equities We think markets have become too complacent both in regard to the
later in 2023 and provide more diversification benefits. But until central inflation and Fed outlook and the growth outlook. Virtually all of our
banks stop hiking and inflation normalizes further, they are unlikely to be cyclical leading indicators are still pointing to much more weakness on
a reliable buffer for risky assets. 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
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.

Our “house view” continues to reflect an overall cautious stance. We do Inflation should still be persistently high for much of 2023, and on the
not advocate an aggressive use of risk budgets. 2023 is going to be a back of rapid tightening by the Federal Reserve we are forecasting a
year about the macro cycle. We have likely reached peak central bank recession for the US in 2023 - a corporate profits recession in the first
hawkishness as the headline inflation rates begin to cool and given the half of the year, followed by a GDP recession.
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.

A turnaround could follow later in the year amid cooling inflation - aided The good news is that central banks will likely be forced to pivot and
by weaker labor and housing markets - which means central banks can signal cutting interest rates sometime next year, which should result in a
pause rate hikes, with even the prospect of rate cuts later in the year. sustained recovery of asset prices and subsequently the economy by
With better visibility on the policy and economic outlook, investor the end of 2023. The bad news is that in order for that pivot to happen,
sentiment will recover from rock bottom levels to take advantage of we will need to see a combination of more economic weakness, an
much improved valuations in riskier asset classes such as equities and increase in unemployment, market volatility, decline in levels of risky
high-yield corporate bonds. assets and a fall in inflation.
JPMorgan JPMorgan
Within developed markets, the UK is still our top pick. As for EM, its In currency markets, further dollar strength is still expected in 2023, but
recovery is mostly linked to China. Tactically, the Asia reopening trade of a lower magnitude and different composition than in 2022. The Fed
led by China is overdue and the activity hurdle rate is very easy, with pause should give the dollar’s rise a breather. Unlike in 2022, lower-
further policy support likely. We expect around 17% upside for China by yielding currencies like the euro are expected to be more insulated as
the end of 2023. central banks pause hikes and the focus shifts to addressing slowing
JPMorgan Asset Management Macquarie Asset Management

Inflation may not be heading back quickly to 2%, but we suspect that As supply chain pressures ease and aggregate demand weakens,
the central banks will be happy to pause, so long as inflation is headed inflation is likely to moderate during 2023 but also remain above central
in the right direction. bank targets of about 2%.
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China should see a steady acceleration in growth over the course of
2023 if policy easing steps up a gear, as seems likely.

In an environment of slow growth, lower inflation and new monetary Bonds — the biggest losers of 2022 — could be the biggest winners in
policies, expect 2023 to have upside for bonds, defensive stocks and 2023, as global macro trends temper inflation next year and central
emerging markets. 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.

Valuations are clearly cheap, and cyclical winds are shifting in favor of Whilst there are some tentative hints that policymakers are becoming
emerging markets as global inflation eases more quickly than expected, less hawkish, we do not expect any policy “pivot” (i.e. rate cuts) in 2023.
the Fed stops hiking rates and the dollar declines. The MSCI EM, an The scale and persistence of the inflation overshoot in 2022 is likely to
index of mid and large-cap companies in 24 emerging markets, could have resulted in reaction functions becoming more reactive for policy
see 12% price returns in 2023. EM debt could benefit from a easing. Policy rate cuts in the US, euro area and UK are not expected
combination of trends. Fixed-income strategists forecast a 14.1% total until 2024.
NatWest NatWest
Any acceleration in growth will be somewhat back-loaded and gradual in Peak policy rates are well priced but fade any rate cut rhetoric. We see
the coming year. Growth is forecast to regain momentum in 2024 as rates rates on hold through 2023 at 5% in the US, 2.25% in Europe and
inflation pressures recede and central banks ease monetary policy, 4.25% in the UK. A more gradual path to peak rates than markets are
albeit cautiously. currently pricing should permit higher rates for longer.
NatWest NatWest
In the US we see bullish steepening risks as markets price a dovish Relative growth and relative policy were clear dollar supports in 2022,
pivot in the second half. In Europe and the UK, we remain short duration but each are set to turn in 2023 and we expect the dollar falls back to
due to heavy supply, quantitative tightening, region risk and weak the pack, with increasing confidence by second quarter. CAD may
demand themes. Bearish steepeners out to 10 years. In Japan we see a weaken as a high beta USD. A more mature dollar rally opens long EM
change of leadership at the BOJ creating flexibility in yield curve control. 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 NatWest
Raging inflation could have a damaging impact on the financial condition Europe is already in recession. Inflation will slow and the ECB will slow
of many leveraged corporations in the leveraged asset class. Bond and with it. But inflation risks are on the high side. A second phase of
loan prices already reflect much of the stress that could have a material inflation, permitted by recovery in the second half, is more likely than a
impact on credit metrics. Investors should be mindful of the inevitable downturn that leads to rate cuts. Bearish risks to longer-term rates form
interest rate pivot from central banks. a long list. We target 2.75% in 10-year bunds. This contrasts with our US
steepening bias.

Tightening cycles to end in the first half of 2023. We see opportunities It’s highly likely that the European economy fell into recession in the
building in bonds, spread product, and cash. Once again, bonds should fourth quarter of 2022 due to the energy shock brought by Russia’s war
provide an effective hedge against equity risks in balanced portfolios. 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

Continued adjustment to pandemic imbalances, tight labor markets, and Bonds could easily rally through yield support levels on evidence of
the risk of further supply shocks (either geopolitical or weather related) recession, slowing inflation, and shifting policy. We raised our bond
will likely see inflation rates remain above central bank targets through exposure to 100% of benchmark duration and are neutral on the yield
the end of 2023, indicating pivots are unlikely in the near-term. curve. We are overweight Treasuries and MBS and underweight high
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We think the next 12 months are likely to see this cycle’s peaks in global We see bond investors standing up more strongly for their interests
inflation, central bank policy tightening, core government bond yields against policymakers. Markets are punishing policy inconsistencies
and market volatility, as well as troughs in GDP growth, corporate between fiscal and monetary authorities within sovereigns; and
earnings growth and global equity market valuations. But we do not excessive fiscal or monetary policy divergences between sovereigns.
believe this will mark a reversion to the post-2008 “new normal”. We We think core government bond yields may be range-bound where
see structural forces behind persistently higher inflation — and policies are consistent, but potentially higher and more volatile where
therefore a persistently higher neutral interest rate, a higher cost of 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 expects 2023 to be a turbulent year as conditions pivot In equities, risks surrounding fundamentals are tilted to the downside
from inflation and monetary policy fears to a weak global economy, but given the extent of cumulative central bank tightening. Pockets of
the firm also expects market volatility to somewhat temper due to lower economic durability should limit a US earnings slowdown, while
inflation and a pause in central bank interest rate increases. A reduction monetary policy offers a bit more support elsewhere. Keeping us equal-
in rates is not seen as likely. We see downside risk from lower corporate weight is the potential for sentiment upside. From beaten down levels,
profits and revenues, but with upside potential from better sentiment. sentiment has runway to improve — particularly in Europe where the
valuation discount is steep.

We are equal-weight inflation-linked bonds on the basis that central We are neutral duration risk. In 2023 we expect Fed rate hikes to total
banks have the tools and perceived willingness to contain inflation, but 0.50% to 0.75%, to reach a steady policy rate of 5%, likely sufficiently
that this is mostly reflected in valuations and the path back toward high for a Fed pause. Treasury yields are likely move slightly higher but
target levels may prove difficult. remain stable thereafter as we think labor market strength will make the
US.
Nuveen Nuveen
We expect the all-too-familiar headwinds of 2022 (persistent inflation, We should continue to see pockets of strength across global equity
rising yields, hawkish central banks and a rocky geopolitical landscape) markets on specific catalysts such as perceived dovish messaging from
to drive volatility and uncertainty through the start of next year. 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 Nuveen
We think we are approaching the end of the current rate-hiking cycle in Geographically, we prefer US stocks (especially large caps) relative to
the US and think a terminal rate might kick in sometime in the second other markets, as they offer better opportunities for both defensive
quarter of 2023 (other central banks are likely to continue tightening as positioning and growth. Across market sectors, we like healthcare as a
they are further behind the curve). relatively stable area and see opportunities in REITs, which offer a
combination of solid fundamentals and attractive valuations. We also
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

A massive liquidity drain will weigh on risk assets. We estimate We see the return to global equities limited to some 5% for the coming
developed market central bank balance sheets to contract by more than year, barely above the 3% we forecast for global government bonds. US
46 of 115 09/01/2023, 10:00 a.m.

$2 trillion. 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 Pimco
As we navigate a period of elevated inflation and an economic The economy in developed markets is under growing pressure as
slowdown, our starting point is one of caution. Pimco’s business cycle monetary policy works with a lag, and we expect this will translate into
models forecast a recession across Europe, the UK, and the US in the pressure on corporate profits. We therefore maintain an underweight in
next year, and the major central banks are pressing ahead with policy equity positioning, disfavor cyclical sectors, and prefer quality across
tightening despite increasing strain in financial markets. our asset allocation portfolios.
Pimco Pimco
Our base case of an economic slowdown or recession would bring We believe corporate earnings estimates globally remain too high and
demand destruction and ease inflationary pressures, which also implies will have to be revised downward as companies increasingly
that the US Fed funds rate may peak in early 2023. acknowledge deteriorating fundamentals. Only when rates stabilize and
Pimco Pimco
In the US, unlike previous cycles, we do not expect a rapid transition Once a recession is underway and the initial deleveraging is mostly
from Fed hikes to rate cuts and the ensuing market support. But even done, we expect high quality investment grade credit spreads would
without a significant rate rally, US Treasury yields are already high also begin to tighten. This year, the initial condition of corporate balance
enough to offer compelling return just from the income alone. In sheets is generally healthy, and we view a default wave as unlikely,
addition, a stabilization in rates could draw more investors back into the especially considering the Fed’s continuing focus on financial stability
asset class. and functioning credit markets.

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
real assets.

While the Federal Reserve will hike a few more times in 2023, it is likely We think that the belief in central bankers’ ability to prevent cyclical
nearing the completion of its tightening cycle. This implies that bonds downturn is flawed. Instead, we expect a hard landing. Risks are tilted to
will be able to support portfolios as recession approaches, with the downside for the 2023 consensus of US annual real GDP growth of
government bond yields under downward pressure and securitized debt 0.8%. As recessions tend to be highly disinflationary, we believe this will
typically providing protection during periods of volatility and risk. take the sting out of inflation.
Robeco Robeco
With core inflation still well above target in the first half of 2023, central When unemployment surges towards 5% and disinflation accelerates on
bankers will likely stretch the pause after the hiking cycle and be the back of a NBER recession in the second half of 2023, the Fed (and
reluctant to cut interest rates, even in the face of a US recession. 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 Robeco
For the euro zone, the consensus of 0.4% real GDP growth in 2023 is The pace of rate hikes will slow as employment figures start to
fairly consistent with leading indicators like decelerating broad money deteriorate. This will solidify the bull market for sovereign bonds and,
growth in the region. But we flag the risk of excess tightening by the after a dismal 2022, there will be better times ahead for the 60/40
ECB, especially to get imported inflation under control. portfolio.
Robeco Schroders
While the dollar bull market could prove to be more persistent as the The overall market outlook for 2023 will largely depend on the direction
Fed shows reluctance to pivot and as potential liquidity events trigger of US Fed monetary policy, which the firm sees pivoting, and whether or
safe-haven flows towards the US, the dollar bull run will likely peak in not a global recession would become a reality, which the team
2023. This will be on the back of declining rate differentials between the considers likely.
the world.
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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.

2023 should be a year during which the real economy finally The impact of tighter monetary policy is likely to be reflected in
deteriorates into a (mild) recession, monetary conditions gradually stop lackluster earnings. Inflation has likely peaked already, and the
tightening, while systemic risk grows. trajectory of monetary policy is unlikely to be more hawkish than what

We remain confident that 10-year US treasury yields have peaked or are The end of the hiking cycle for majority of emerging-market countries is
close to peaking in a 4% to 4.5% range, with a capital gains potential by highly conducive for EM local bond outperformance.
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 State Street

The Fed can’t hike rates forever. Eventually earnings cynicism will find a While aggressive Fed policy has led to some improvement, defeating
bottom and optimism will be repriced. In the meantime, positioning inflation will take some time.
portfolios for the fundamental weakness washing over the world, while
acknowledging the potential for future positivity, takes combining
offense with defense.

A policy pivot could potentially renew sentiment toward more cyclical Although markets are projecting rates to decline by late 2023, central
segments of the market and usher in hope for earnings positivity off a banks are likely to remain plenty aggressive in the near term. Until the
very cynical base. But the timing is uncertain. While a pivot is getting Fed’s battle against inflation turns less aggressive, the elevated yields in
closer, as the Fed enters the later stages of its hiking cycle and defensive short-duration sectors may help investors balance income
earnings continue to be revised lower, the change in trend is unlikely to and total return in order to preserve capital.
occur right away.
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.

The global economy has passed from decades of declining interest The balance between central bank tightening, high inflation, and slowing
rates into a new regime marked by persistent inflationary pressures and growth could produce rate volatility. Higher yields, especially for high
higher rates. Regime change clearly presents risks. But markets may yield bonds, are supported by strong fundamentals and can help
have overreacted to some of those risks in 2022, creating attractive provide a buffer against credit weakness.

The Fed hiking cycle isn’t complete, but it has covered much ground. Valuations and currencies are attractive in many emerging markets.
Long duration Treasuries historically have performed well in recessions Central bank tightening may have peaked. The path in 2023 is likely to
and could provide diversification as the economy weakens. remain uneven, but an easing of China’s zero-Covid policies could be a
significant tailwind.

Emerging-market currencies and local currency yields are at attractive A slowdown in the pace of Fed rate hikes should narrow rate
levels, reflecting cautious investor sentiment. As the Fed slows the pace differentials, softening dollar strength. Given the level of overvaluation,
of interest rate tightening, EM currencies may benefit. economic surprises — such as a sooner-than-expected Fed pivot —
easily could push the US currency lower in 2023.
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US investment grade yields could peak in the first half of 2023 as 2023 will see a balancing act from central banks, as they maintain
inflation cools, allowing the Fed to moderate policy. Slowing growth and restrictive policy to bring inflation down against a backdrop of
inflation could support longer-duration bonds. Credit may prove resilient recessions across most of the G-10. Inflation remains above target all
thanks to strong fundamentals. 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.

Weaker growth and higher policy rates for most emerging-market We expect next year will be the worst year for global growth since the
economies. Valuations and positioning suggest some value for EM 1980s, aside from the global financial crisis and Covid years. Many
investors, but worsening external metrics increase vulnerability. countries are set to experience recessionary pressures as the
supersized rate hikes of the past year start to take stronger hold.

US credit spreads should widen as the year progresses and the impact The Fed will likely finish raising rates in the first half of 2023, with the
of the Fed’s aggressive policy tightening begins to emerge more fully. Fed funds rate reaching roughly 5%. The Fed’s singular focus on curbing
Areas like leveraged loans, high-yield corporates, and emerging-markets generationally-high inflation will continue next year, likely holding policy
bond will likely see meaningful underperformance as economic risks rates at elevated levels until core inflation and job creation ease
rise. markedly and consistently.
Truist Wealth UBS

In the coming year, we expect inflation fears to evolve into growth Given our expectations of sharper US disinflation and rapid Fed easing
concerns, particularly in Europe. The European Central Bank will likely in 2023, we expect US 10-year yields will fall 150 basis points to end the
be less aggressive in their policy response given Europe’s challenging year at 2.65%. Ten-year real yields retrace half of this year’s rise to end
macro backdrop. This would cap upward moves in euro zone yields. As 2023 at 65bps. We expect 10-year Bunds and Gilts to underperform
a result, strong foreign demand for the relative yield advantage and Treasuries as “single mandate” ECB and BOE stay on hold for longer.
safe-haven quality offered by US government debt should apply some JGBs do little as the BOJ persists with YCC. Australia and Korea
downward pressure on US yields. duration are our favored APAC picks.
UBS UBS
The strongest EM disinflation in 20 years should drive 10% to 12% The economic weakness we forecast is widespread but it is not deep. It
returns in EM duration. EM equities should post similar returns (but later, would be enough, however, to push unemployment 100 basis points
and with lower Sharpe ratios) as a peaking Fed, China reopening and higher in DM, and 200 basis points in the US (to 5.5%). Combined with
troughing semis cycle drive strong second-half returns. Currencies are inflation coming down rapidly in the coming quarters, that creates a
the weakest link. We see EM Asia weakening further in the first half much stronger central bank pivot than is priced by the market: about
amid a weak trade backdrop, low carry and a need to rebuild depleted 200 basis points in DM cuts by mid-2024 (and nearly 400 basis points
FX reserves. in the US).

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.

Our confidence that the bottom is in for China is fortified since these Going into 2023, we expect global equities at an index level to remain
adjustments to Covid-19 policy are taking place in tandem with the most range-bound. They will likely be capped to the upside by the Fed’s
comprehensive support for the property sector to date. A rebounding desire to keep financial conditions from easing too much. However, we
China may provide a needed boost as developed economies slow, but expect some cushion on the downside from a resilient economy and
will also likely lead to higher commodity prices. This too may make it rebounding China.

Financials and energy are our preferred sectors. This is because we We are neutral on government bonds. The Fed is likely to be slow in
believe cyclically-oriented positions should perform if what appears to ending or reversing its hiking cycle as long as the US labor market
be overstated pessimism on global growth fades in the face of resilient bends but does not break, while signs that overall inflation has peaked
economic data. Activity surprising to the upside and a higher-for-longer may reduce the odds of overtightening. However, price pressures are
rate outlook should benefit value stocks relative to growth, in our view – likely to remain stubbornly high – a side effect of a US labor market that
particularly as profit estimates for inexpensive companies are holding refuses to crack.
49 of 115 09/01/2023, 10:00 a.m.

up well relative to their pricier peers.

In currencies, we believe we have moved from a strong, trending US Inflation is set to decelerate meaningfully in 2023. The Fed and the ECB
dollar to more of a rangebound trade in USD. Our catalysts for a broad are likely to finish their tightening cycle by early next year and to start
turn in the dollar are for the Fed to stop hiking interest rates, China’s cutting rates in 2024.
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
peso.
UniCredit UniCredit
The ongoing sharp monetary tightening and upcoming recession pose Long-dated yields are likely to be close to their peaks. Convincing
significant downside risks. However, evidence of slowing core inflation, signals that inflation is easing will give central banks a green light to rein
peaking official rates and signs of economic recovery would pave the in some of the recent tightening, leading to a bull market revival and
way for more risk taking in the second half. 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.

Although rising interest rates have created near-term pain for investors, Our base case scenario is for the Federal Reserve to deliver a bit more
higher starting interest rates have raised our return expectations more tightening than what the market is pricing. Meanwhile, we expect the
than twofold for US and international bonds. We now expect US bonds Bank of England and European Central Bank to not hike as much as
to return 4.1%–5.1% per year over the next decade, compared with the implied by the market. Inflation falls fairly quickly in the US, and but
1.4%–2.4% annual returns we forecast a year ago. For international drops even faster in several other large economies. US core CPI drops
bonds, we expect returns of 4%–5% per year over the next decade, below 3% annualized, but with a wide confidence interval around this
compared with our year-ago forecast of 1.3%–2.3% per year. forecast.

G10 central banks followed the same playbook for most of 2022. This Stagflation is the biggest macro risk, in our opinion, and central bank
already has begun to change, and differences should be quite responses would be tough to predict. Some policymakers likely would
pronounced by mid-2023. The Fed hikes through mid-2023, then sits for opt to put their economies into the deep freeze so they could squelch
quite a while unless the US economy rolls over. Fragile housing markets inflation.
in countries such as Canada, Australia, and Sweden cause their central
banks to end tightening early in 2023, and contemplate easing
somewhat soon.

Relative interest rate outlook still supports dollar upside. We think the Massive private debt overhang in many G10 economies could cause
Fed will hike rates more than current market pricing and keep rates earlier/faster rate cuts. Risks appear to be largest in Sweden and
higher for longer than market pricing indicates. In contrast, we think Canada, both of which have seen a huge jump in corporate and
market pricing is generally still too high for the ECB, BOE and several household debt/GDP over the past decade
other central banks. Debt overhangs will likely force many central banks
to keep real rates uncomfortably low.

We expect a U.S. recession in the first half of 2023, as well as a Dollar strength early in the year should flatten and partially reverse its
continued global economic slowdown, as last year’s hawkish monetary upward trajectory, as slowing inflation and Federal Reserve interest-rate
policy and money growth slowdown works with a lag. That should drive cuts in the second half of 2023 remove a key source of support.
down corporate earnings growth and create important inflection points

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.
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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
US

In the US, the Fed’s aggressive tightening has increased the risk of Equities should offer entry points when they have repriced in the coming
recession in the second half, while again failing to dent inflation. 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.

We expect inflation to fall back towards target over the coming two The Fed won’t want to cut rates as quickly as the market is currently
years as global growth slows, with recessions forecast in both Europe pricing (second half of 2023) since they will want to be satisfied that
and the US. 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

Outside of the US, markets have seen significant declines in price- Going into 2023, one expected shock remains: recession. The US, euro
earnings multiples. European markets, for example, would be well area and UK are all expected to see recessions next year, and the rest
placed to rally should there be positive developments in Ukraine. Asia of the world should continue to weaken, with China a notable exception.
will benefit from a post “zero-Covid” recovery in China. Long term, The recession shock likely means corporate earnings and economic
however, the US valuation premium is not likely to be challenged given growth will come under pressure in the first half of the year, while at the
the dominance of US technology, a greater level of energy security and same time, China’s reopening offers a reprieve for certain assets.
more positive demographics. In the near term though, some highly-
priced parts of the US market remain vulnerable.

A recession is all but inevitable in the US, euro area and UK. Expect a A strong labor market, ESG, US/China decoupling, and
mild US recession in the first half of 2023 with a risk that it starts later. deglobalization/reshoring are expected to keep certain areas of capex
Europe likely sees recession this winter with a shallow recovery strong, even in the event of a recession.
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

Controls on US semiconductor exports to China are part of a broader Relative to subdued expectations, growth will surprise to the upside in
strategic agenda that, although manageable for now, could have 2023, as the US averts a recession, Europe experiences a robust
substantial effects on China’s output and currency if escalated further. recovery following the energy crisis, and China dismantles its zero-

We would not rule out a US recession over the next 24 months. The conventional wisdom sees stocks falling in the first six months of
However, if a recession does occur, it will probably not start until 2024. 2023 in anticipation of a US recession and then recovering in the back
More importantly, any US recession is likely to be a mild one – so mild, in half of the year once the first green shoots appear. We think the exact
fact, that it may end up being almost indistinguishable from a soft opposite will happen: Stocks will rise in the first half of 2023 as hopes
landing. 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
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large caps.
BCA Research BNP Paribas

Global bond yields will move sideways in the first half of next year, as We expect a downturn in global GDP growth in 2023, led by recessions
the impact of falling inflation broadly offsets the impact of better-than- in both the US and the euro zone, with below-trend growth in China and
expected growth data. Yields should drop modestly in the second half many emerging markets.

With Europe and the UK in or approaching recession, China slowing Regionally, we prefer US equity to developed international and emerging
sharply and the US “needing” one to bring inflation back to target, it is markets primarily due to the higher (albeit still low) likelihood of an
our belief that “Global Recession” remains our single most likely engineered soft landing, which would boost US equity disproportionally.
scenario – we give it a 60% probability. 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

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.

The powerful rally in the dollar in 2022 was driven by an alignment of US equities remain our biggest country underweight. We think there is
factors that will not persist in 2023. The greenback is expensive, and more bad news to come, and market expectations and valuations are
relative growth prospects point to a weaker dollar next year. Relative still too optimistic. It is clear to everyone, except the central bankers,
monetary policy will also tighten more outside the US, notably in Europe. that the Fed is on course for another major policy error. They may
A weaker greenback will allow for some stability in EM currencies, which succeed in curing inflation but are also likely to seriously hurt the patient
we think are broadly undervalued. in the process. We are content to stay defensive and underweight the
monetary policy.
Carmignac Carmignac
2023 will be a year of global recession, but investment opportunities will We expect the US economy to enter a recession later this year but with
arise from the continued desynchronization between the three largest a much sharper and longer decline in activity than anticipated by the
economic blocs – the US, the euro area and China. 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 Citi
In equities we take off the European underweight, and shift it to the US. We reduce our negative credit views, by taking European credit back to
We go long China and stay underweight in Asia excluding China. We flat, on the view that the bottom in the ZEW may be in, which has
reduce the UK equity long to keep the overall level of equity risk historically been a positive factor. It is hard to see how shocks in 2023
unchanged. These positions are FX hedged. For US sectors we remain will be even worse for Europe than what we saw 2022. But given the US
defensive: long healthcare and utilities against industrials and financials. recession view we stick to underweights in both US investment grade
and high yield.
Columbia Threadneedle Credit Suisse

While economic growth is slowing, at this point it doesn’t look like a Inflation is peaking in most countries as a result of decisive monetary
recession in the US will be very deep. In contrast, economies in Europe policy action, and should eventually decline in 2023. Our key
are under significant stress and a deeper recession there seems likely. 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.
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We read the Fed and ECB as being absolutely committed to bringing Overall, we see output declining 1% in the euro area and 2% in the US
inflation back to desired levels within the next several years. Although during the year ahead. World growth slows to around 2% in this
the costs in doing so may be lower than in the past, it will not be forecast, a rate that has historically been labeled recessionary.

Equity markets are projected to move higher in the near term, plunge as The 10-year Treasury yield is projected to remain in its recent range in
the US recession hits and then recover fairly quickly. We see the S&P the months to come, and then rally moderately around midyear as the
500 at 4,500 in the first half, down more than 25% in the third quarter, US downturn approaches. The German Bund yield should rise to 2.60%
and back to 4,500 by year end 2023. by the second quarter before remaining relatively stable in comparison
to Treasury yields.
Deutsche Bank DWS

The pace of recovery in 2024 and beyond is likely to be moderate, not a The looming mild recession in the US and the euro zone will be very
strong bounce as has been seen in the past. Factors that are likely to different from previous downturns. Thanks to the demographically
weigh on global growth for some time to come include uncertainties driven labor market, which is robust even in a downturn, workers will
relating to both the Russia-Ukraine conflict—including a lingering keep their jobs – for the most part – household incomes will remain
energy-related competitiveness shock in Europe—and the growing US� stable and consumers will continue to consume.
China strategic competition.
DWS DWS
We expect the US Federal Reserve to raise key interest rates to Inflation rates are expected to fall in 2023 but will still remain at a high
between 5% and 5.25% next year, while in the euro zone the key rate is level – 6% in the euro zone and 4.1% in the US.
likely to rise to 3%. We do not currently see a rate cut next year.
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 Fidelity
Tactically, we are quite bullish on European equities. The valuation Markets want to believe that central banks will blink and change
discount to US stocks of 31% is more than double the average of the direction, negotiating the economy towards a soft landing. But in our
past 20 years. The outlook for value stocks, which have a higher view, a hard landing remains the most likely outcome in 2023. A
weighting in European indexes than in US indexes, remains positive. The recession is likely in the US and near certain in Europe and the UK.
days of buying growth stocks at any price are over for now.
Fidelity Fidelity
We expect Chinese policymakers to continue to focus on reviving the In the US, the Fed appears set on raising rates significantly beyond
economy, investing in longer-term areas such as green technologies neutral levels to bring inflation under control. We do not expect a pivot
and infrastructure. Any loosening of Covid restrictions will cause until there is a meaningful deterioration in hard data, especially inflation
consumption to pick up. The deglobalization that has arisen from the and the labor market. Although we do not expect it soon, when it does
pandemic and tensions with the US will take time to work its way arrive, it should boost risky assets such as equities and credit, as well as
through but is a theme that will grow. government bonds.

Were the US to head into recession next year, credit defaults would rise Europe is likely already in a recession and the US is likely to fall into one
significantly. So far, the market is yet to reflect these risks, notably in — hopefully a mild one. Risk/reward profiles seem to favor fixed income
high yield credit. Prudent credit selection within high yield is therefore over global equities, particularly for the first half of 2023.
essential.

recovery.
53 of 115 09/01/2023, 10:00 a.m.

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).

We continue to favor euro investment-grade credit, which is cheaper The fundamentally overvalued dollar is past peak. The Fed’s final hike
from a historical perspective than other credit segments (especially looming for early spring 2023 is set to reduce rates uncertainty (a
global high yield and US credit). previous dollar boost) and path the way to narrowing yield gaps vs

We expect global growth of just 1.8% in 2023, as US resilience We are neutral to global equities, believing there is still a lot of
contrasts with a European recession and a bumpy reopening in China. 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 JPMorgan
In rates, we prefer US Treasuries over Bunds, and Canadian government Global GDP growth in 2023 is forecast to climb 1.6%. Developed Market
bonds over US Treasuries. Elsewhere in DM sovereigns, we also favour growth is forecast at 0.8%, US growth is forecast at 1%, euro area
Spain vs Italy and in EM prefer Mexico vs Brazil. 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 JPMorgan
The convergence between the US and international markets should The growth profile will show divergence: the euro area will likely face a
continue next year, both on a dollar and local currency basis. The S&P mild recession into late 2022/early 2023, while the US is expected to
500 risk-reward relative to other regions remains unattractive. 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

Within credit markets, we believe that an “up-in-quality” approach is The US will enter recessionary conditions in the first half following the
warranted. The yields now available on lower quality credit are certainly UK and Europe; however, these recessions are likely to be over by
eye-catching, yet a large part of the repricing year to date has been mid-2023 and the developed world could see a synchronized recovery
driven by the increase in government bond yields. High yield credit towards the end of the year.

We think it likely that both the UK (as of the third quarter 2022) and the Morgan Stanley fixed-income strategists forecast high single-digit
euro area (starting fourth quarer 2022) are already in recession. For the returns through the end of 2023 in German Bunds, Italian Government
US, we think recession risks are high enough for it to be considered our bonds (BTPs) and European investment-grade bonds, as well as in
base case, although we don’t expect one to start until the first half of Treasuries, investment-grade bonds, municipal bonds, mortgage-backed
2023. These recessions are likely to be relatively mild, however, with securities issued by government sponsored agencies and AAA-rated
peak-to-trough falls in gross domestic product (GDP) ranging from -1.5% securities in the US.
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Investors should keep a close eye on quality. US high-yield corporate We forecast a marked slowdown in global economic growth in 2023:
bonds may look enticing, but they may not be worth the risk during a 1.2% from 3.7% in 2022. Our projections are below market consensus
potentially extended default cycle. 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
covid.”
NatWest NatWest
Whilst there are some tentative hints that policymakers are becoming Peak policy rates are well priced but fade any rate cut rhetoric. We see
less hawkish, we do not expect any policy “pivot” (i.e. rate cuts) in 2023. rates rates on hold through 2023 at 5% in the US, 2.25% in Europe and
The scale and persistence of the inflation overshoot in 2022 is likely to 4.25% in the UK. A more gradual path to peak rates than markets are
have resulted in reaction functions becoming more reactive for policy currently pricing should permit higher rates for longer.
easing. Policy rate cuts in the US, euro area and UK are not expected
until 2024.
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 NatWest
2023 is forecast to see significant falls in inflation as the energy shock We forecast a recession in the US, with GDP declining by 0.4% year-on-
unwinds, though we expect CPI to continue to overshoot targets in the year in 2023. We suspect we should see a relatively mild downturn in
US, euro area and UK. The energy unwind is a necessary, but not a the current setting (peak-to-trough -1%) followed by a comparatively
sufficient, condition for inflation to return sustainably to target. modest recovery (we expect below-trend growth of roughly 1% later in
the year).

Like the global economy, the risk of recession weighs on the outlook for We are neutral on US stocks on an absolute basis and relative to bonds
US economic growth in 2023. We project real GDP growth will end the and cash. Macro and earnings concerns are offset by extreme
year in a range of -0.5% to 0.5%. We see a 75% chance that the pessimism and technical improvements. We favor small-caps over large-
economy contracts for part of 2023 and give 25% odds to a soft- caps and Value over Growth. We are overweight Europe equities
landing scenario. excluding the UK and marketweight on all other international regions.

We are watching for better Technology stock performance to support In equities, risks surrounding fundamentals are tilted to the downside
global breadth and US relative strength. While a risk for Europe is that given the extent of cumulative central bank tightening. Pockets of
too much good news has been discounted too early, a choppy uptrend economic durability should limit a US earnings slowdown, while
is likely for European equities. Cyclical sectors should outperform monetary policy offers a bit more support elsewhere. Keeping us equal-
defensive sectors. weight is the potential for sentiment upside. From beaten down levels,
sentiment has runway to improve — particularly in Europe where the

We are neutral duration risk. In 2023 we expect Fed rate hikes to total We think we are approaching the end of the current rate-hiking cycle in
0.50% to 0.75%, to reach a steady policy rate of 5%, likely sufficiently the US and think a terminal rate might kick in sometime in the second
high for a Fed pause. Treasury yields are likely move slightly higher but quarter of 2023 (other central banks are likely to continue tightening as
remain stable thereafter as we think labor market strength will make the they are further behind the curve).
US.
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
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At the same time, we expect inflation to slow sharply, from a global peak We see the return to global equities limited to some 5% for the coming
of 8.3% to 3.5% by the end of 2023. That will be enough for major year, barely above the 3% we forecast for global government bonds. US
central banks to end their tightening cycles, led by the US Federal equities are set to show the best performance. This is thanks to
Reserve, but not enough for them to start cutting rates. We see Fed relatively attractive valuations, resilient domestic growth and the fact
funds peaking at 4.75%, with an end to its quantitative tightening that the Fed is set to be the first of its peers to reach the end of its
program in the third quarter of the year. We see the ECB taking over as hiking cycle.
Pimco Pimco
As we navigate a period of elevated inflation and an economic In the US, unlike previous cycles, we do not expect a rapid transition
slowdown, our starting point is one of caution. Pimco’s business cycle from Fed hikes to rate cuts and the ensuing market support. But even
models forecast a recession across Europe, the UK, and the US in the without a significant rate rally, US Treasury yields are already high
next year, and the major central banks are pressing ahead with policy enough to offer compelling return just from the income alone. In
tightening despite increasing strain in financial markets. addition, a stabilization in rates could draw more investors back into the
asset class.

2023 is sizing up to be a better year for some segments of the market While the dollar bull market could prove to be more persistent as the
than 2022. Inflation and central bank policy will likely continue being a Fed shows reluctance to pivot and as potential liquidity events trigger
key focus for investors. Yet, while persistently restrictive monetary safe-haven flows towards the US, the dollar bull run will likely peak in
policy and the resulting US recession will weigh on the broad equity 2023. This will be on the back of declining rate differentials between the
market outlook, it implies opportunities for both core fixed income and US and the rest of the world, and a peak in US growth versus the rest of
real assets. the world.

We’re expecting several pivots in 2023, which will likely open new We expect euro investment grade to generate excess returns of more
chapters in market history. Identifying the right sequence will be all than 5% in 2023 and total returns of just under 10%, which would be the
important, with the UK, most EM, and the US set to lead the pack, while best performance in a decade. A bull decompression in the early stages
the euro area, Japan, China, and most frontier markets likely to be of the rally should prompt IG to outperform high yield, Single A to
lagging. outperform BBB and Banks and Utilities to outperform Industrials and
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.

While risk is still likely to be elevated in the near term, if a policy pivot US equities remain expensive on a relative basis. However, the US
turns market pessimism to optimism and risk aversion declines, our view economy appears to be on a stronger footing than the rest of the world,
is that segments with decent fundamentals and attractive valuations and its less cyclical nature could provide support as global growth
may enter a repair phase more quickly than expensive areas. weakens.
Domestically oriented US small caps represent one of these
possibilities.

In equities, the team is slightly underweighting US and European In fixed income, the team is slightly underweight US and other
equities. It is overweighting emerging markets, Japan, international developed market investment grade bonds. The team favors emerging
versus US stocks, and US small-capitalization stocks versus their large- markets, floating rate loans, and global high yield.
cap counterparts.

Our base case calls for a US recession in 2023, even though economic Within equities, we retain a US bias. Overseas markets remain cheap on
growth in the US is expected to remain stronger relative to global peers. a relative basis, but valuation is a condition not a catalyst. Given the
Europe is likely to see the deepest recession, with countries closer to weak global economic backdrop we expect next year, the US economy
Ukraine and Russia being hit especially hard. should remain a relative outperformer, and while the upward momentum
in the US dollar is likely to slow, it should remain relatively strong.
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The Fed will likely finish raising rates in the first half of 2023, with the In the coming year, we expect inflation fears to evolve into growth
Fed funds rate reaching roughly 5%. The Fed’s singular focus on curbing concerns, particularly in Europe. The European Central Bank will likely
generationally-high inflation will continue next year, likely holding policy be less aggressive in their policy response given Europe’s challenging
rates at elevated levels until core inflation and job creation ease macro backdrop. This would cap upward moves in euro zone yields. As
markedly and consistently. a result, strong foreign demand for the relative yield advantage and
UBS
year.
UBS UBS
Stocks are pricing in only 41% and 80% probabilities of a recession in Given our expectations of sharper US disinflation and rapid Fed easing
the US and Europe, respectively. Weak growth and earnings drag the in 2023, we expect US 10-year yields will fall 150 basis points to end the
market lower before a fall in rates helps it bottom at 3,200 in the second year at 2.65%. Ten-year real yields retrace half of this year’s rise to end
quarter and lifts it to 3,900 by the end of 2023. With revenues and 2023 at 65bps. We expect 10-year Bunds and Gilts to underperform
margins under greater pressure, Eurostoxx is likely to do worse, Treasuries as “single mandate” ECB and BOE stay on hold for longer.
bottoming in the second quarter at 330 & ending 2023 at 385. As a part JGBs do little as the BOJ persists with YCC. Australia and Korea
of our top trades we lay out stock lists of disinflation beneficiaries. duration are our favored APAC picks.
UBS UBS
Unlike equities, we prefer EU high-yield to US high-yield in credit. We The economic weakness we forecast is widespread but it is not deep. It
also prefer investment grade over high yield and leveraged loans in all would be enough, however, to push unemployment 100 basis points
regions. 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).

Against long-term average global growth of 3.5%, the common signal The US economy (and earnings) probably don’t fall off as sharply as
across assets is pricing in 3% global growth. That’s sub-trend but not many are projecting, and, however, also the Fed will need to keep rates
recessionary. High-yield credit is most optimistic, equities less so. But a higher for longer.
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

We are neutral on government bonds. The Fed is likely to be slow in In US and European credit,, investment grade bond yields look
ending or reversing its hiking cycle as long as the US labor market increasingly attractive as a balance between a potentially resilient
bends but does not break, while signs that overall inflation has peaked economy and more range-bound government bond yields.
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
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
UniCredit Wells Fargo

Inflation is set to decelerate meaningfully in 2023. The Fed and the ECB Long term bond yields rise faster in the US than other G10 markets. The
57 of 115 09/01/2023, 10:00 a.m.

are likely to finish their tightening cycle by early next year and to start 10-year Treasury nominal yield tops 4% soon, and there is a decent
cutting rates in 2024. chance it hits 4.25% by March. Germany and UK 10-year yields increase
only 10 to 20 basis points by mid-year.

Relative growth outlook supports dollar gains. Growth expectations for The ECB and BOE have already shown more concern for slowing
2022/23 have mostly moved against the dollar this year. Wells Fargo growth vs. high inflation, and seem more inclined to pivot away from
Economics is much further below consensus on growth in the UK and inflation fighting in a stagflation scenario. In contrast, the Fed’s bar for
euro zone than the US. China reopening is a key risk to our view. 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 expects a recession in early 2023, We favor US large-cap and US mid-cap equities over international
recovery by midyear, and a rebound that gains strength into year-end. equities and remain tilted toward quality and defensive sectors. Our
Nevertheless, full-year US economic growth and inflation targets may positioning will likely shift to more cyclical in 2023 as we anticipate the
reflect mostly the recession. eventual recovery.

CHINA
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This low growth-high inflation environment will spread to emerging Equities should offer entry points when they have repriced in the coming
markets, with China the exception. Amundi has cut China’s GDP months, with a preference for US and a quality/value/high dividend tilt.
forecast to 4.5% from 5.2%. That’s a lot better than China’s anemic Investors should gradually increase exposure to European and Chinese,
growth levels of 2022 (3.2%) and is based on hopes of a stabilization in cyclical and deep value stocks.
the housing market and a gradual re-opening of the economy.

Going into 2023, one expected shock remains: recession. The US, euro China’s gradual reopening is underway, with most curbs expected to be
area and UK are all expected to see recessions next year, and the rest removed by the second half of the year. It could be bumpy until later in
of the world should continue to weaken, with China a notable exception. 2023.
The recession shock likely means corporate earnings and economic

After a volatile start to 2023, emerging markets should produce strong After a historically bad year for industrial metals in 2022, cyclical and
returns. Once inflation and rates peak in the US and China reopens, the secular drivers are expected to boost metals in 2023, and copper rallies
outlook for emerging markets should turn more favorable. China approximately 20%. Recessions in key markets are a headwind but
equities will likely strengthen due to a reversal in both zero-Covid and China’s reopening, a peaking dollar and especially an acceleration of
property tightening. renewables investment should more than offset these negative factors
for copper.

Higher for longer oil prices. Russian sanctions, low oil inventories, A strong labor market, ESG, US/China decoupling, and
China’s reopening, and an OPEC that’s willing to cut production in case deglobalization/reshoring are expected to keep certain areas of capex
demand weakens should keep energy prices high. Brent Crude is strong, even in the event of a recession.
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 Barclays
The global economy looks set to enter a stagflationary phase: as Controls on US semiconductor exports to China are part of a broader
Europe and the US contract, growth remains sluggish in China, but strategic agenda that, although manageable for now, could have
inflation fades only gradually. Bringing inflation back to target, while substantial effects on China’s output and currency if escalated further.
BCA Research BNP Paribas

Relative to subdued expectations, growth will surprise to the upside in We expect a downturn in global GDP growth in 2023, led by recessions
2023, as the US averts a recession, Europe experiences a robust in both the US and the euro zone, with below-trend growth in China and
recovery following the energy crisis, and China dismantles its zero- many emerging markets.

Global green bond issuance will recover to 2021 levels in 2023, we With Europe and the UK in or approaching recession, China slowing
think, thanks largely to Europe’s consistency and China’s rising sharply and the US “needing” one to bring inflation back to target, it is
issuance. our belief that “Global Recession” remains our single most likely

China’s exit from Covid proves disorderly. Its stop-go approach to Outside of the US, the global economy is already in recession due to the
lockdowns damages confidence, dents policy efficacy, and results in effects of the strong dollar and a very weak China. China has started to
economic stalling. 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.
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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 Carmignac
2023 will be a year of global recession, but investment opportunities will Unlike the bond market, equity prices do not incorporate the scenario of
arise from the continued desynchronization between the three largest a severe recession, so investors need to be cautious. Japanese equities
economic blocs – the US, the euro area and China. 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
Citi Citi
Global growth is expected to slow to below 2% in 2023 — excluding In equities we take off the European underweight, and shift it to the US.
China, global growth is likely to run at less than a 1% pace, near some We go long China and stay underweight in Asia excluding China. We
definitions of global recession. Inflation next year is likely to gradually reduce the UK equity long to keep the overall level of equity risk
decline but remain high on average. unchanged. These positions are FX hedged. For US sectors we remain
defensive: long healthcare and utilities against industrials and financials.

Short copper has been our recession trade in commodities. While the We need to get through a deeper recession in Europe as it struggles
Chinese reopening is a risk to the trade, our metals strategist thinks that through a winter of energy scarcity and inflation. We also need to see a
copper is unlikely to benefit enough, given that Chinese housing may sustained economic recovery in China, whose prior regulatory policies
stop falling, but will not rebound much, and given the US recession. We and current Covid policies curtail domestic growth.
therefore stay negative. We stay neutral in energy and gold.

We expect the euro zone and UK to have slipped into recession, while The pace of recovery in 2024 and beyond is likely to be moderate, not a
China is in a growth recession. These economies should bottom out by strong bounce as has been seen in the past. Factors that are likely to
mid-2023 and begin a weak, tentative recovery – a scenario that rests weigh on global growth for some time to come include uncertainties
on the crucial assumption that the US manages to avoid a recession. relating to both the Russia-Ukraine conflict—including a lingering
Economic growth will generally remain low in 2023 against the energy-related competitiveness shock in Europe—and the growing US�
backdrop of tight monetary conditions and the ongoing reset of China strategic competition.
geopolitics.
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

We forecast a drop in global growth from 3.2% in 2022 to 2.1% in 2023. Selected EM markets offer value after years of underperformance, with
We expect barely positive US growth (0.3%), with even a mild dollar fatigue and China’s (mild) rebound both helping – we see EM as a
contraction over the central quarters of 2023. We expect core CPI target for positioning early for the post-recession environment.
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.

We expect global growth of just 1.8% in 2023, as US resilience China is likely to grow slowly in the first half as a reopening initially
contrasts with a European recession and a bumpy reopening in China. 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).

Attractive valuations, a peaking US dollar and China policy support Global GDP growth in 2023 is forecast to climb 1.6%. Developed Market
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creates opportunity for EMs in 2023. Importantly, dispersion between growth is forecast at 0.8%, US growth is forecast at 1%, euro area
individual markets in Asia has widened materially, and stock level growth is projected to come in at 0.2%, China’s economy is forecast to
dispersion is even greater - reaching a point not seen since the global grow 4.0% and emerging market growth is forecast at 2.9% in 2023.
financial crisis of 2008. This offers diversification benefits along with
opportunity for alpha.
JPMorgan JPMorgan
Within developed markets, the UK is still our top pick. As for EM, its At 2.9% in 2023, EM growth looks to remain well below its pre-
recovery is mostly linked to China. Tactically, the Asia reopening trade pandemic trend, slowing modestly from 2022. EM excluding China is
led by China is overdue and the activity hurdle rate is very easy, with expected to slow to a below-trend 1.8% with wide regional divergences.
further policy support likely. We expect around 17% upside for China by In China, the full-year 2023 growth forecast is 4% year-over-year, where
the end of 2023. two quarters of below-trend growth are assumed as the economy
loosens Covid restrictions.

China should see a steady acceleration in growth over the course of
2023 if policy easing steps up a gear, as seems likely.
NatWest NatWest
We forecast a marked slowdown in global economic growth in 2023: If or when the dollar cycle turns is the key FX question heading into
1.2% from 3.7% in 2022. Our projections are below market consensus 2023. While uncertainties remain and the growth outlook is fraught with
and official forecasts (the latter typically do not show recessions—yet). risks, a passing of the peak in global economic pessimism could lead to
The advanced economies are expected to endure a year of slowdown in some recovery in European currencies in 2023. China’s slow and
2023 with outright recessions in the US and UK and stagnation in the uneven reopening from Covid-19 lockdowns reduces appetite to
euro area – while China experiences a mild form of “economic long position for a weaker dollar in antipodean currencies, particularly early
covid.” in 2023, though a more decisive change in policies may alter that

We estimate 2.4% real global GDP growth in 2023 and assign a 65% The firm expects growth to continue to be constrained globally, with
chance of severe global recession. Recession in developed economies some regions arguably already in recession and others on the precipice.
and a Chinese reopening present offsetting risks. Global inflation has It also believes that China’s pandemic-to-endemic transition will
peaked but will stay higher for longer. continue to materially impact the outlook for global economic demand.

While China’s reopening incrementally improves the outlook for We see upside to commodities given under-investment creating
emerging market equities, the reopening process is likely to be bumpy. supply/demand imbalances, as well as increased demand from a China
We prefer to play the China reopening through non-EM assets, and reopening and ongoing Russia disruption. Natural resources companies
have a bias for developed market equities where there is greater clarity. show much improved fundamentals to help better weather economic
headwinds, while cheap valuations already reflect at least a portion of

Dollar weakness. Slower growth. A big drop in inflation. Muted equities. We forecast global growth to slow to 1.7% in 2023, with stagnation in
Bullish bonds. And a China rebound. All of this spells out the need for most developed economies and outright recession in Europe. China’s
investors to remain cautious on risk assets – particularly through the economy, on the other hand, is likely to re-accelerate as the government
first half of the year. relaxes its zero-Covid policy. Overall, growth is likely to pick up again
following the first quarter.

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 Societe Generale

Supported by liquidity and growth, Hong Kong and mainland Chinese We’re expecting several pivots in 2023, which will likely open new
equities stand a good chance of outperforming its peers, especially chapters in market history. Identifying the right sequence will be all
emerging markets. 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 T. Rowe Price
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Fair value for the S&P 500 currently reads at 3,650 based on our Valuations and currencies are attractive in many emerging markets.
inflation moderation valuation framework. But we expect negative EPS Central bank tightening may have peaked. The path in 2023 is likely to
growth in the first quarter, a Fed pivot in the second, China re-opening in remain uneven, but an easing of China’s zero-Covid policies could be a
the third and rising US recession risk in the fourth. This should see the significant tailwind.
UBS UBS
The strongest EM disinflation in 20 years should drive 10% to 12% Against long-term average global growth of 3.5%, the common signal
returns in EM duration. EM equities should post similar returns (but later, across assets is pricing in 3% global growth. That’s sub-trend but not
and with lower Sharpe ratios) as a peaking Fed, China reopening and recessionary. High-yield credit is most optimistic, equities less so. But a
troughing semis cycle drive strong second-half returns. Currencies are deep dive within equities shows that even they are not priced for a
the weakest link. We see EM Asia weakening further in the first half recession yet. US equities are pricing in only a 41% probability of
amid a weak trade backdrop, low carry and a need to rebuild depleted recession, compared to 80% in Europe (which is already in recession)
FX reserves. and 64% for China. The decline in stocks thus far can be fully explained

While a recession is a very real possibility, investors may be surprised by Our confidence that the bottom is in for China is fortified since these
the resilience of the global economy – even with such a sharp tightening adjustments to Covid-19 policy are taking place in tandem with the most
in financial conditions. The labor market will certainly cool, but healthy comprehensive support for the property sector to date. A rebounding
household balance sheets should continue to support spending in the China may provide a needed boost as developed economies slow, but
services sector. Moreover, some of the major drags on the world will also likely lead to higher commodity prices. This too may make it
economy emanating from Europe and China are poised to get better, difficult for the Fed and other central banks to back off too quickly.

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.

China’s reopening should fuel a pick-up in domestic oil demand, Securing sufficient access to energy is not a problem that will be solved
offsetting some of the downward pressure on inflation from goods at the end of this winter – and may grow more intense as Chinese
prices. demand increases if mobility restrictions are removed.
UBS Asset Management Vanguard

In currencies, we believe we have moved from a strong, trending US Growth is likely to end 2023 flat or slightly negative in most major
dollar to more of a rangebound trade in USD. Our catalysts for a broad economies outside of China. Unemployment is likely to rise over the
turn in the dollar are for the Fed to stop hiking interest rates, China’s year but nowhere near as high as during the 2008 and 2020 downturns.
zero-Covid-19 policy to end, and energy pressures in Europe stemming Through job losses and slowing consumer demand, a downtrend in
from Russia’s invasion of Ukraine to subside. None of these have fully inflation is likely to persist through 2023.
peso.
Wells Fargo
EUROPE

In Europe, the energy shock, compounded by inflationary pressures Equities should offer entry points when they have repriced in the coming
62 of 115 09/01/2023, 10:00 a.m.

related to the aftermath of the Covid crisis, remains the main dampener months, with a preference for US and a quality/value/high dividend tilt.
on growth. The ensuing cost-of-living crisis will drag Europe into Investors should gradually increase exposure to European and Chinese,
recession this winter before a slow recovery. But that doesn’t mean cyclical and deep value stocks.

We expect inflation to fall back towards target over the coming two We expect euro zone GDP to contract by 1% between the fourth quarter
years as global growth slows, with recessions forecast in both Europe of 2022 and the first quarter of 2023, followed by a weak recovery. We
and the US. 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.

Outside of the US, markets have seen significant declines in price- Going into 2023, one expected shock remains: recession. The US, euro
earnings multiples. European markets, for example, would be well area and UK are all expected to see recessions next year, and the rest
placed to rally should there be positive developments in Ukraine. Asia of the world should continue to weaken, with China a notable exception.
will benefit from a post “zero-Covid” recovery in China. Long term, The recession shock likely means corporate earnings and economic
however, the US valuation premium is not likely to be challenged given growth will come under pressure in the first half of the year, while at the
the dominance of US technology, a greater level of energy security and same time, China’s reopening offers a reprieve for certain assets.

A recession is all but inevitable in the US, euro area and UK. Expect a The global economy looks set to enter a stagflationary phase: as
mild US recession in the first half of 2023 with a risk that it starts later. Europe and the US contract, growth remains sluggish in China, but
Europe likely sees recession this winter with a shallow recovery inflation fades only gradually. Bringing inflation back to target, while
thereafter as real incomes and likely overtightening pressure demand. 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-

We expect a downturn in global GDP growth in 2023, led by recessions Global green bond issuance will recover to 2021 levels in 2023, we
in both the US and the euro zone, with below-trend growth in China and think, thanks largely to Europe’s consistency and China’s rising
many emerging markets. issuance.

With Europe and the UK in or approaching recession, China slowing We favor having more duration exposure in Treasuries as there is more
sharply and the US “needing” one to bring inflation back to target, it is relative tightening of financial conditions in the US than in European
our belief that “Global Recession” remains our single most likely bonds or Japanese government bonds.

The powerful rally in the dollar in 2022 was driven by an alignment of When we look around the world, we find areas where negative
factors that will not persist in 2023. The greenback is expensive, and sentiment clearly is excessive and is more than reflected in equity
relative growth prospects point to a weaker dollar next year. Relative valuations. These include China, Europe, and Japan. We are overweight
monetary policy will also tighten more outside the US, notably in Europe. and expect the outcome to be better than what is reflected in market
A weaker greenback will allow for some stability in EM currencies, which estimates and valuations.
we think are broadly undervalued.
Carmignac Carmignac
2023 will be a year of global recession, but investment opportunities will In Europe, high energy costs are expected to affect corporate margins
arise from the continued desynchronization between the three largest and household purchasing power, and thus trigger a recession over this
economic blocs – the US, the euro area and China. 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
Citi
In equities we take off the European underweight, and shift it to the US.
63 of 115 09/01/2023, 10:00 a.m.

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
Citi Citi
Our only rates underweights are in the European periphery, where we We reduce our negative credit views, by taking European credit back to
express the increase in supply / QT view. We also remain underweight flat, on the view that the bottom in the ZEW may be in, which has
France against Germany for similar reasons. 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.

We need to get through a deeper recession in Europe as it struggles While economic growth is slowing, at this point it doesn’t look like a
through a winter of energy scarcity and inflation. We also need to see a recession in the US will be very deep. In contrast, economies in Europe
sustained economic recovery in China, whose prior regulatory policies are under significant stress and a deeper recession there seems likely.

geopolitics.

In early 2023, demand for cyclical commodities may be soft, while The recession we have now been anticipating for nine months draws
elevated pressure in energy markets should help speed up Europe’s nearer. A downturn may already be under way in Germany and the euro
energy transition. Pullbacks in carbon prices could offer opportunities in area overall thanks to the energy shock stemming from the Russia-
the medium term, and we think the backdrop for gold should improve as Ukraine war. Our expectation for a recession in the US by mid-2023 has
policy normalization nears its end. 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

Overall, we see output declining 1% in the euro area and 2% in the US The 10-year Treasury yield is projected to remain in its recent range in
during the year ahead. World growth slows to around 2% in this the months to come, and then rally moderately around midyear as the
forecast, a rate that has historically been labeled recessionary. 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 DWS
The looming mild recession in the US and the euro zone will be very We expect the US Federal Reserve to raise key interest rates to
different from previous downturns. Thanks to the demographically between 5% and 5.25% next year, while in the euro zone the key rate is
driven labor market, which is robust even in a downturn, workers will likely to rise to 3%. We do not currently see a rate cut next year.
DWS DWS
Inflation rates are expected to fall in 2023 but will still remain at a high The recovery after the downturn will also be very modest. Growth rates
level – 6% in the euro zone and 4.1% in the US. of 0.3% (2023) and 1.2% (2024) for the euro zone, and 0.4% and 1.3%
for the US.
DWS Fidelity
Tactically, we are quite bullish on European equities. The valuation Markets want to believe that central banks will blink and change
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discount to US stocks of 31% is more than double the average of the direction, negotiating the economy towards a soft landing. But in our
past 20 years. The outlook for value stocks, which have a higher view, a hard landing remains the most likely outcome in 2023. A
weighting in European indexes than in US indexes, remains positive. The 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.

recovery.

We see 10-year Treasuries trading at 3.25% at the end of 2023. We are We continue to favor euro investment-grade credit, which is cheaper
less confident about Bunds, despite our slightly less hawkish ECB views from a historical perspective than other credit segments (especially
(relative to market pricing). global high yield and US credit).

The fundamentally overvalued dollar is past peak. The Fed’s final hike We expect global growth of just 1.8% in 2023, as US resilience
looming for early spring 2023 is set to reduce rates uncertainty (a contrasts with a European recession and a bumpy reopening in China.

The euro area and the UK are probably in recession, mainly because of We are neutral to global equities, believing there is still a lot of
the real income hit from surging energy bills. But we expect only a mild uncertainty. Within equities, we are biased to the US. We prefer to own
downturn as Europe has already managed to cut Russian gas imports quality growth companies with strong operating fundamentals and
without crushing activity and is likely to benefit from the same post- lasting pricing power. We are underweight International Developed
pandemic improvements that are helping avoid US recession. Given markets relative to the US given their cyclical exposure, weaker
reduced risks of a deep downturn and persistent inflation, we now 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).

In rates, we prefer US Treasuries over Bunds, and Canadian government European and emerging credit markets seem particularly interesting.
bonds over US Treasuries. Elsewhere in DM sovereigns, we also favour Even though the economic situation is difficult, corporate balance
Spain vs Italy and in EM prefer Mexico vs Brazil. sheets are in good shape, which should be a relative support in the
months to come.
JPMorgan JPMorgan
Global GDP growth in 2023 is forecast to climb 1.6%. Developed Market The convergence between the US and international markets should
growth is forecast at 0.8%, US growth is forecast at 1%, euro area continue next year, both on a dollar and local currency basis. The S&P
growth is projected to come in at 0.2%, China’s economy is forecast to 500 risk-reward relative to other regions remains unattractive.
grow 4.0% and emerging market growth is forecast at 2.9% in 2023. Continental European equities have a likely recession to negotiate and
JPMorgan JPMorgan
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JPMorgan JPMorgan
The growth profile will show divergence: the euro area will likely face a In currency markets, further dollar strength is still expected in 2023, but
mild recession into late 2022/early 2023, while the US is expected to of a lower magnitude and different composition than in 2022. The Fed
slide into recession in late 2023. 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

Despite remaining above central bank targets, inflation should start to Within credit markets, we believe that an “up-in-quality” approach is
moderate as the economy slows, the labor market weakens, supply warranted. The yields now available on lower quality credit are certainly
chain pressures continue to ease and Europe manages to diversify its eye-catching, yet a large part of the repricing year to date has been
energy supply. driven by the increase in government bond yields. High yield credit

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.

Energy security will continue to be a dominant theme for the year We think it likely that both the UK (as of the third quarter 2022) and the
ahead. Macquarie Asset Management anticipates that although Europe euro area (starting fourth quarer 2022) are already in recession. For the
may have enough resources to see it through this winter through US, we think recession risks are high enough for it to be considered our
increased liquified natural gas imports and reliance on other fuel base case, although we don’t expect one to start until the first half of
sources, the biggest challenge will occur in the coming year. 2023. These recessions are likely to be relatively mild, however, with
peak-to-trough falls in gross domestic product (GDP) ranging from -1.5%

Morgan Stanley fixed-income strategists forecast high single-digit European equities could offer a modest upside, with a forecasted 6.3%
returns through the end of 2023 in German Bunds, Italian Government total return over 2023 as lower inflation nudges stock valuations higher.
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.
NatWest NatWest
We forecast a marked slowdown in global economic growth in 2023: Whilst there are some tentative hints that policymakers are becoming
1.2% from 3.7% in 2022. Our projections are below market consensus less hawkish, we do not expect any policy “pivot” (i.e. rate cuts) in 2023.
and official forecasts (the latter typically do not show recessions—yet). The scale and persistence of the inflation overshoot in 2022 is likely to
The advanced economies are expected to endure a year of slowdown in have resulted in reaction functions becoming more reactive for policy
2023 with outright recessions in the US and UK and stagnation in the easing. Policy rate cuts in the US, euro area and UK are not expected
euro area – while China experiences a mild form of “economic long until 2024.
covid.”
NatWest NatWest
Peak policy rates are well priced but fade any rate cut rhetoric. We see In the US we see bullish steepening risks as markets price a dovish
rates rates on hold through 2023 at 5% in the US, 2.25% in Europe and pivot in the second half. In Europe and the UK, we remain short duration
4.25% in the UK. A more gradual path to peak rates than markets are due to heavy supply, quantitative tightening, region risk and weak
currently pricing should permit higher rates for longer. 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 NatWest
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Europe is already in recession. Inflation will slow and the ECB will slow If or when the dollar cycle turns is the key FX question heading into
with it. But inflation risks are on the high side. A second phase of 2023. While uncertainties remain and the growth outlook is fraught with
inflation, permitted by recovery in the second half, is more likely than a risks, a passing of the peak in global economic pessimism could lead to
downturn that leads to rate cuts. Bearish risks to longer-term rates form some recovery in European currencies in 2023. China’s slow and
a long list. We target 2.75% in 10-year bunds. This contrasts with our US uneven reopening from Covid-19 lockdowns reduces appetite to
rates views. Buy five-year Treasuries vs 10-year bunds – a hybrid position for a weaker dollar in antipodean currencies, particularly early
steepener that captures the more advanced Fed and our global in 2023, though a more decisive change in policies may alter that
steepening bias. backdrop heading out of winter.

It’s highly likely that the European economy fell into recession in the We are neutral on US stocks on an absolute basis and relative to bonds
fourth quarter of 2022 due to the energy shock brought by Russia’s war and cash. Macro and earnings concerns are offset by extreme
and tighter monetary policy. We forecast a 0% to 0.5% growth rate for pessimism and technical improvements. We favor small-caps over large-
the euro zone in 2023, as the recession continues into next year. We caps and Value over Growth. We are overweight Europe equities
expect the recession to be mild. The outlook, however, is uncertain and excluding the UK and marketweight on all other international regions.

We are watching for better Technology stock performance to support In equities, risks surrounding fundamentals are tilted to the downside
global breadth and US relative strength. While a risk for Europe is that given the extent of cumulative central bank tightening. Pockets of
too much good news has been discounted too early, a choppy uptrend economic durability should limit a US earnings slowdown, while
is likely for European equities. Cyclical sectors should outperform monetary policy offers a bit more support elsewhere. Keeping us equal-
defensive sectors. weight is the potential for sentiment upside. From beaten down levels,

We forecast global growth to slow to 1.7% in 2023, with stagnation in At the same time, we expect inflation to slow sharply, from a global peak
most developed economies and outright recession in Europe. China’s of 8.3% to 3.5% by the end of 2023. That will be enough for major
economy, on the other hand, is likely to re-accelerate as the government central banks to end their tightening cycles, led by the US Federal
relaxes its zero-Covid policy. Overall, growth is likely to pick up again Reserve, but not enough for them to start cutting rates. We see Fed
following the first quarter. funds peaking at 4.75%, with an end to its quantitative tightening
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

The US dollar’s bull run has likely been exhausted and, once it has For the euro zone, the consensus of 0.4% real GDP growth in 2023 is
convincingly changed direction, should brighten the relative outlook for fairly consistent with leading indicators like decelerating broad money
both emerging markets and European global risk assets. The relatively growth in the region. But we flag the risk of excess tightening by the
attractive valuations outside the US suggest investors stand to gain ECB, especially to get imported inflation under control.
convincingly through global diversification.

We’re expecting several pivots in 2023, which will likely open new We expect euro investment grade to generate excess returns of more
chapters in market history. Identifying the right sequence will be all than 5% in 2023 and total returns of just under 10%, which would be the
important, with the UK, most EM, and the US set to lead the pack, while best performance in a decade. A bull decompression in the early stages
the euro area, Japan, China, and most frontier markets likely to be of the rally should prompt IG to outperform high yield, Single A to
lagging. outperform BBB and Banks and Utilities to outperform Industrials and
Societe Generale T. Rowe Price

A premature end to Russia’s war on Ukraine is a possibility. European Cheaper valuations reflect the current challenges from high inflation,
assets would benefit most, and although we are neutral on European recession risks, and an energy crisis in Europe. An easing of these
equities (cheap cyclicals would soar in that scenario), we clearly give headwinds and continued fiscal support could provide upside over the
ourselves some protection through our increased euro exposure. course of 2023. Valuations are compelling, but high energy costs and
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In equities, the team is slightly underweighting US and European In fixed income, the team is slightly underweight US and other
equities. It is overweighting emerging markets, Japan, international developed market investment grade bonds. The team favors emerging
versus US stocks, and US small-capitalization stocks versus their large- markets, floating rate loans, and global high yield.
cap counterparts.
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 UBS

In the coming year, we expect inflation fears to evolve into growth Stocks are pricing in only 41% and 80% probabilities of a recession in
concerns, particularly in Europe. The European Central Bank will likely the US and Europe, respectively. Weak growth and earnings drag the
be less aggressive in their policy response given Europe’s challenging market lower before a fall in rates helps it bottom at 3,200 in the second
macro backdrop. This would cap upward moves in euro zone yields. As quarter and lifts it to 3,900 by the end of 2023. With revenues and
a result, strong foreign demand for the relative yield advantage and margins under greater pressure, Eurostoxx is likely to do worse,
safe-haven quality offered by US government debt should apply some bottoming in the second quarter at 330 & ending 2023 at 385. As a part
downward pressure on US yields. of our top trades we lay out stock lists of disinflation beneficiaries.
UBS UBS
Given our expectations of sharper US disinflation and rapid Fed easing Unlike equities, we prefer EU high-yield to US high-yield in credit. We
in 2023, we expect US 10-year yields will fall 150 basis points to end the also prefer investment grade over high yield and leveraged loans in all
year at 2.65%. Ten-year real yields retrace half of this year’s rise to end regions.
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.

Against long-term average global growth of 3.5%, the common signal While a recession is a very real possibility, investors may be surprised by
across assets is pricing in 3% global growth. That’s sub-trend but not the resilience of the global economy – even with such a sharp tightening
recessionary. High-yield credit is most optimistic, equities less so. But a in financial conditions. The labor market will certainly cool, but healthy
deep dive within equities shows that even they are not priced for a household balance sheets should continue to support spending in the
recession yet. US equities are pricing in only a 41% probability of services sector. Moreover, some of the major drags on the world
recession, compared to 80% in Europe (which is already in recession) economy emanating from Europe and China are poised to get better,
and 64% for China. The decline in stocks thus far can be fully explained not worse, between now and the end of the first quarter of 2023.

In US and European credit,, investment grade bond yields look We forecast a mild technical recession in both the US and the euro
increasingly attractive as a balance between a potentially resilient zone, followed by a below-trend recovery. The risks to growth are
economy and more range-bound government bond yields. skewed to the downside, including from negative geopolitical
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 UniCredit
2023 is set to inherit non-trivial economic and market risks and we We expect a solid year in European credit – both in financials and non-
suggest entering the year with a defensive allocation, preferring fixed financials – though spread tightening is likely to take place only in the
income to equities and developed to emerging market exposure. Bonds second half. Lower tiers of the capital structure and high yield are likely
offer attractive carry and superior risk-adjusted return prospects, in our to outperform, mainly thanks to high carry. We prefer HY NFI and Bank
view, while equities will face weak profitability and initially little tailwind AT1s over IG seniors.
from valuations. We like investment-grade and high-yield credit in
Europe and retain a cautious view on duration.
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The dollar will stay stubbornly strong through the first half of 2023. The Long term bond yields rise faster in the US than other G10 markets. The
market is too sanguine the European/UK energy situation - deeper- 10-year Treasury nominal yield tops 4% soon, and there is a decent
than-expected recessions in euro zone/UK vs. resilient US growth chance it hits 4.25% by March. Germany and UK 10-year yields increase
keeps upward pressure on the broad dollar. By mid-year we call for only 10 to 20 basis points by mid-year.
EURUSD to return to parity and GBPUSD to reach 1.11.

decades.
UK

We expect euro zone GDP to contract by 1% between the fourth quarter Going into 2023, one expected shock remains: recession. The US, euro
of 2022 and the first quarter of 2023, followed by a weak recovery. We area and UK are all expected to see recessions next year, and the rest
expect the UK economy to enter recession this year and forecast GDP of the world should continue to weaken, with China a notable exception.
growth to average 4.3% in 2022, -0.7% in 2023 and 0.8% in 2024. The recession shock likely means corporate earnings and economic
Bank of America Citi

A recession is all but inevitable in the US, euro area and UK. Expect a In equities we take off the European underweight, and shift it to the US.
mild US recession in the first half of 2023 with a risk that it starts later. We go long China and stay underweight in Asia excluding China. We
Europe likely sees recession this winter with a shallow recovery reduce the UK equity long to keep the overall level of equity risk
thereafter as real incomes and likely overtightening pressure demand. unchanged. These positions are FX hedged. For US sectors we remain

geopolitics.
Fidelity Goldman Sachs

Markets want to believe that central banks will blink and change The euro area and the UK are probably in recession, mainly because of
direction, negotiating the economy towards a soft landing. But in our the real income hit from surging energy bills. But we expect only a mild
view, a hard landing remains the most likely outcome in 2023. A downturn as Europe has already managed to cut Russian gas imports
recession is likely in the US and near certain in Europe and the UK. without crushing activity and is likely to benefit from the same post-
HSBC
In equities, we prefer France (CAC40) vs Sweden (OMX) and Italy
(FTSE MIB) over UK equities (FTSE100).
JPMorgan Macquarie Asset Management

Within developed markets, the UK is still our top pick. As for EM, its The US will enter recessionary conditions in the first half following the
recovery is mostly linked to China. Tactically, the Asia reopening trade UK and Europe; however, these recessions are likely to be over by
led by China is overdue and the activity hurdle rate is very easy, with mid-2023 and the developed world could see a synchronized recovery
further policy support likely. We expect around 17% upside for China by towards the end of the year.
the end of 2023.
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Macquarie Asset Management NatWest

We think it likely that both the UK (as of the third quarter 2022) and the We forecast a marked slowdown in global economic growth in 2023:
euro area (starting fourth quarer 2022) are already in recession. For the 1.2% from 3.7% in 2022. Our projections are below market consensus
US, we think recession risks are high enough for it to be considered our and official forecasts (the latter typically do not show recessions—yet).
base case, although we don’t expect one to start until the first half of The advanced economies are expected to endure a year of slowdown in
2023. These recessions are likely to be relatively mild, however, with 2023 with outright recessions in the US and UK and stagnation in the
peak-to-trough falls in gross domestic product (GDP) ranging from -1.5% euro area – while China experiences a mild form of “economic long
in the US to -2.5% in the UK. covid.”
NatWest NatWest
until 2024.

2023 is forecast to see significant falls in inflation as the energy shock We are neutral on US stocks on an absolute basis and relative to bonds
unwinds, though we expect CPI to continue to overshoot targets in the and cash. Macro and earnings concerns are offset by extreme
US, euro area and UK. The energy unwind is a necessary, but not a pessimism and technical improvements. We favor small-caps over large-
sufficient, condition for inflation to return sustainably to target. 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
UBS Wells Fargo

Given our expectations of sharper US disinflation and rapid Fed easing Long term bond yields rise faster in the US than other G10 markets. The
in 2023, we expect US 10-year yields will fall 150 basis points to end the 10-year Treasury nominal yield tops 4% soon, and there is a decent
year at 2.65%. Ten-year real yields retrace half of this year’s rise to end chance it hits 4.25% by March. Germany and UK 10-year yields increase
2023 at 65bps. We expect 10-year Bunds and Gilts to underperform only 10 to 20 basis points by mid-year.

decades.
APAC
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AXA Investment Managers Citi

Outside of the US, markets have seen significant declines in price- In equities we take off the European underweight, and shift it to the US.
earnings multiples. European markets, for example, would be well We go long China and stay underweight in Asia excluding China. We
placed to rally should there be positive developments in Ukraine. Asia reduce the UK equity long to keep the overall level of equity risk
will benefit from a post “zero-Covid” recovery in China. Long term, unchanged. These positions are FX hedged. For US sectors we remain
however, the US valuation premium is not likely to be challenged given defensive: long healthcare and utilities against industrials and financials.
the dominance of US technology, a greater level of energy security and
Fidelity HSBC Asset Management

Emerging markets and Asian countries, with a weaker growth Attractive valuations, a peaking US dollar and China policy support
correlation with the US and Europe, present one way to increase creates opportunity for EMs in 2023. Importantly, dispersion between
diversification, while cash and quality investment grade securities offer individual markets in Asia has widened materially, and stock level
defensive characteristics. 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 Schroders
Within developed markets, the UK is still our top pick. As for EM, its Schroders expects a reversal in the performance of global currencies in
recovery is mostly linked to China. Tactically, the Asia reopening trade 2023, where the US dollar may weaken. On the other hand, the
led by China is overdue and the activity hurdle rate is very easy, with Japanese yen may regain its strength, providing a hedge against the
further policy support likely. We expect around 17% upside for China by impact of a semiconductor downcycle on other Asian economies and
the end of 2023. currencies.
Societe Generale UBS

Asia is at the end of the earnings downgrade cycle, making cheap Asian Given our expectations of sharper US disinflation and rapid Fed easing
assets look attractive. 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
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.
JAPAN

We favor having more duration exposure in Treasuries as there is more When we look around the world, we find areas where negative
relative tightening of financial conditions in the US than in European sentiment clearly is excessive and is more than reflected in equity
bonds or Japanese government bonds. 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 JPMorgan
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Unlike the bond market, equity prices do not incorporate the scenario of The convergence between the US and international markets should
a severe recession, so investors need to be cautious. Japanese equities continue next year, both on a dollar and local currency basis. The S&P
could benefit from the renewed competitiveness of the economy, 500 risk-reward relative to other regions remains unattractive.
boosted by the fall of the yen against the dollar. China will be one of the Continental European equities have a likely recession to negotiate and
few areas where economic growth in 2023 will be better than in 2022. geopolitical tail risks, but the euro zone has never been this attractively
NatWest Societe Generale

In the US we see bullish steepening risks as markets price a dovish We’re expecting several pivots in 2023, which will likely open new
pivot in the second half. In Europe and the UK, we remain short duration chapters in market history. Identifying the right sequence will be all
due to heavy supply, quantitative tightening, region risk and weak important, with the UK, most EM, and the US set to lead the pack, while
demand themes. Bearish steepeners out to 10 years. In Japan we see a the euro area, Japan, China, and most frontier markets likely to be
change of leadership at the BOJ creating flexibility in yield curve control. 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.
PIVOT

2023 will be a two-speed year, with plenty of risks to watch out for. Differences between emerging markets will intensify in 2023. Countries
Bonds are back, market valuations are more attractive, and a Fed pivot with a more benign inflation and monetary outlook such as in Latin
in the first part of the year should trigger interesting entry points. America and EMEA are attractive. A Fed pivot should boost the appeal
of EM equities generally later in the year.

The Fed won’t want to cut rates as quickly as the market is currently A Fed pivot is certainly getting closer and will mark an inflection in US
pricing (second half of 2023) since they will want to be satisfied that dollar trajectory, though not a collapse. The yen should be the main
they have properly broken the back of inflation. The price to pay for this beneficiary. The euro and sterling are facing new structural challenges
will be a recession in the first three quarters of 2023 in the US which that may not disappear any time soon.
Bank of America Carmignac

US rates stay elevated but expect a decline by year end 2023. The yield On the sovereign bond side, weaker economic growth is generally
curve is expected to dis-invert and rates volatility should fall. Both two- associated with lower bond yields. However, given the inflationary
year and 10-year US Treasuries should end 2023 at 3.25%. Sectors hurt environment, while the pace of tightening may slow or even stop, it is
by rising rates in 2022 may benefit in 2023. unlikely to reverse soon.

The hurdle for the Fed to pause is obviously lower than for the Fed to When the Fed does finally reduce rates for the first time in 2023 – an
cut. And duration will trade well when the Fed is almost done hiking. event that we expect after several negative employment reports – it will
Cuts will not be required. As such we are closer to buying bonds than do so at a time when the economy is already weakening. We think this
buying equities. But for now we remain neutral on US rates, and instead will mark a turning point that will portend the beginning of a sustained
buy in EM. 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.
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We see 2023 as a tale of two halves. Markets are likely to first focus on The current mix of aggressive central bank rate hiking to deal with
the “higher rates for longer” theme, which should lead to a muted equity elevated inflation, geopolitical uncertainty and elevated commodity
performance. We expect sectors and regions with stable earnings, low prices, and impending recession in the euro area and US has been a
leverage and pricing power to fare better in this environment. Once we toxic mix for emerging markets. We see this sector remaining under
get closer to a pivot by central banks away from tight monetary policy, pressure well into 2023, but then beginning to trend more positive later
we would rotate toward interest-rate-sensitive sectors with a growth tilt. in the year as inflation begins to recede and central bank policy begins
DWS Fidelity
We expect the US Federal Reserve to raise key interest rates to Markets want to believe that central banks will blink and change
between 5% and 5.25% next year, while in the euro zone the key rate is direction, negotiating the economy towards a soft landing. But in our
likely to rise to 3%. We do not currently see a rate cut next year. view, a hard landing remains the most likely outcome in 2023. A
Fidelity Fidelity
Rates should eventually plateau, but if inflation remains sticky above 2%, In the US, the Fed appears set on raising rates significantly beyond
they are unlikely to reduce quickly even if banks take other measures to neutral levels to bring inflation under control. We do not expect a pivot
maintain liquidity and manage increasingly challenging debt piles. 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.

We see the Fed peak at 5% in March, but the risks lie towards the Fed For now, we recommend a small underweight in equities (and high-
hiking more as consumer demand and capex initially prove resilient. We yield), which we stand ready to increase once the current rebound
do not see Fed rate cuts before the fourth quarter, i.e. not as fast as the wanes. Further into 2023, a more risk-prone stance may become
implied curve is suggesting. 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 HSBC Asset Management

Markets are now pricing in a more dovish Federal Reserve, signalling an A turnaround could follow later in the year amid cooling inflation - aided
expectation that the US central bank will begin lowering its funds rate by weaker labor and housing markets - which means central banks can
by the end of next year. Our economists, by contrast, don’t expect any pause rate hikes, with even the prospect of rate cuts later in the year.
rate cuts in 2023. If the US economy turns out to be more resilient than With better visibility on the policy and economic outlook, investor
anticipated and inflation stickier in 2023, stock markets and Treasuries sentiment will recover from rock bottom levels to take advantage of
could fall in price. much improved valuations in riskier asset classes such as equities and
high-yield corporate bonds.
JPMorgan JPMorgan
The good news is that central banks will likely be forced to pivot and In the first half of 2023, the S&P 500 is expected to re-test the lows of
signal cutting interest rates sometime next year, which should result in a 2022, but a pivot from the Fed could drive an asset recovery later in the
sustained recovery of asset prices and subsequently the economy by year, pushing the S&P 500 to 4,200 by year-end.
the end of 2023. The bad news is that in order for that pivot to happen,
NatWest NatWest
until 2024.
NatWest NatWest
73 of 115 09/01/2023, 10:00 a.m.

NatWest NatWest
In the US we see bullish steepening risks as markets price a dovish While earnings will face increased headwinds in the first half, we
pivot in the second half. In Europe and the UK, we remain short duration nevertheless see scope for IG corporates to post a strong annual total
due to heavy supply, quantitative tightening, region risk and weak return, helped by an (eventual) rates pivot by central banks, and a
demand themes. Bearish steepeners out to 10 years. In Japan we see a healthy excess return by the second half. Such an outlook demands
change of leadership at the BOJ creating flexibility in yield curve control. 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.

Europe is already in recession. Inflation will slow and the ECB will slow Continued adjustment to pandemic imbalances, tight labor markets, and
with it. But inflation risks are on the high side. A second phase of the risk of further supply shocks (either geopolitical or weather related)
inflation, permitted by recovery in the second half, is more likely than a will likely see inflation rates remain above central bank targets through
downturn that leads to rate cuts. Bearish risks to longer-term rates form the end of 2023, indicating pivots are unlikely in the near-term.
a long list. We target 2.75% in 10-year bunds. This contrasts with our US
steepening bias.
Northern Trust Pictet Asset Management

Northern Trust expects 2023 to be a turbulent year as conditions pivot At the same time, we expect inflation to slow sharply, from a global peak
from inflation and monetary policy fears to a weak global economy, but of 8.3% to 3.5% by the end of 2023. That will be enough for major
the firm also expects market volatility to somewhat temper due to lower central banks to end their tightening cycles, led by the US Federal
inflation and a pause in central bank interest rate increases. A reduction Reserve, but not enough for them to start cutting rates. We see Fed
in rates is not seen as likely. We see downside risk from lower corporate funds peaking at 4.75%, with an end to its quantitative tightening
profits and revenues, but with upside potential from better sentiment. program in the third quarter of the year. We see the ECB taking over as
Pimco Robeco
In the US, unlike previous cycles, we do not expect a rapid transition With core inflation still well above target in the first half of 2023, central
from Fed hikes to rate cuts and the ensuing market support. But even bankers will likely stretch the pause after the hiking cycle and be
without a significant rate rally, US Treasury yields are already high reluctant to cut interest rates, even in the face of a US recession.
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 Robeco
When unemployment surges towards 5% and disinflation accelerates on While the dollar bull market could prove to be more persistent as the
the back of a NBER recession in the second half of 2023, the Fed (and Fed shows reluctance to pivot and as potential liquidity events trigger
other central banks) will start cutting. Therefore, we think the Fed policy safe-haven flows towards the US, the dollar bull run will likely peak in
rate will be below the 4.6% December 2023 level implied in the Fed 2023. This will be on the back of declining rate differentials between the
funds futures curve. 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.

Global central banks are likely to press ahead with more rate hikes We’re expecting several pivots in 2023, which will likely open new
before a pivot, weighing onto economic growth prospects. We see chapters in market history. Identifying the right sequence will be all
market expectations of a peak in US interest rates at close to 5% as important, with the UK, most EM, and the US set to lead the pack, while
being appropriate, after which the pace of hikes will likely slow. the euro area, Japan, China, and most frontier markets likely to be
lagging.

We believe the clear prospect of an imminent Fed pivot offers the We remain confident that 10-year US treasury yields have peaked or are
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opportunity to increase cheap-quality credit and strongly re-gear our close to peaking in a 4% to 4.5% range, with a capital gains potential by
strategy towards cheap EM assets, from unhedged local currency end-2023, as the Fed continues to provide more color on the nature of
bonds to (mostly) non-China Asian equities. 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

The Fed pivot will likely happen before the ECB pivot. Positive for the Fair value for the S&P 500 currently reads at 3,650 based on our
euro and beginning of the end for the dollar rally. 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

The Fed can’t hike rates forever. Eventually earnings cynicism will find a A policy pivot could potentially renew sentiment toward more cyclical
bottom and optimism will be repriced. In the meantime, positioning segments of the market and usher in hope for earnings positivity off a
portfolios for the fundamental weakness washing over the world, while very cynical base. But the timing is uncertain. While a pivot is getting
acknowledging the potential for future positivity, takes combining closer, as the Fed enters the later stages of its hiking cycle and
offense with defense. 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.
possibilities.
T. Rowe Price UBS

A slowdown in the pace of Fed rate hikes should narrow rate For the US, we now expect near zero growth in both 2023 and 2024
differentials, softening dollar strength. Given the level of overvaluation, (roughly 1 percentage point below consensus), and a recession to start
economic surprises — such as a sooner-than-expected Fed pivot — in 2023. Combined with inflation falling rapidly (50 basis points below
easily could push the US currency lower in 2023. consensus), the Fed would cut the Federal Funds rate down to 1.25% by
year.

The economic weakness we forecast is widespread but it is not deep. It We are neutral on government bonds. The Fed is likely to be slow in
would be enough, however, to push unemployment 100 basis points ending or reversing its hiking cycle as long as the US labor market
higher in DM, and 200 basis points in the US (to 5.5%). Combined with bends but does not break, while signs that overall inflation has peaked
inflation coming down rapidly in the coming quarters, that creates a may reduce the odds of overtightening. However, price pressures are
much stronger central bank pivot than is priced by the market: about likely to remain stubbornly high – a side effect of a US labor market that
200 basis points in DM cuts by mid-2024 (and nearly 400 basis points refuses to crack.
in the US).
UniCredit Vanguard
Inflation is set to decelerate meaningfully in 2023. The Fed and the ECB We don’t believe that central banks will achieve their targets of 2%
are likely to finish their tightening cycle by early next year and to start inflation in 2023, but they will maintain those targets and look to achieve
cutting rates in 2024. them through 2024 and into 2025 — or reassess them when the time is
right.

Massive private debt overhang in many G10 economies could cause The ECB and BOE have already shown more concern for slowing
earlier/faster rate cuts. Risks appear to be largest in Sweden and growth vs. high inflation, and seem more inclined to pivot away from
Canada, both of which have seen a huge jump in corporate and inflation fighting in a stagflation scenario. In contrast, the Fed’s bar for
household debt/GDP over the past decade pivoting seems higher. Private debt has been more contained in the US
decades.

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

DOLLAR

A Fed pivot is certainly getting closer and will mark an inflection in US With inflation, the dollar and Fed hawkishness peaking in the first half of
dollar trajectory, though not a collapse. The yen should be the main 2023, markets are expected to tolerate more risk later in the year. The
beneficiary. The euro and sterling are facing new structural challenges S&P 500 typically reaches its bottom six months ahead of the end of a
that may not disappear any time soon. 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
Bank of America BCA Research

After a historically bad year for industrial metals in 2022, cyclical and As a countercyclical currency, the US dollar will weaken in 2023. While
secular drivers are expected to boost metals in 2023, and copper rallies the greenback may find some temporary support in 2024, this will be a
approximately 20%. Recessions in key markets are a headwind but reprieve in an extended dollar bear market.
China’s reopening, a peaking dollar and especially an acceleration of
renewables investment should more than offset these negative factors
for copper.

The dollar continues to face negative structural factors and the US yield Higher for longer rates – with divergence favoring the dollar - tightens
advantage is probably peaking. However, we expect risk-off market global financial conditions and sets off a global recession, denting
moves to provide safe-haven support to the dollar over the next three to corporate earnings and risk assets through the first half of 2023.
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.

Outside of the US, the global economy is already in recession due to the The powerful rally in the dollar in 2022 was driven by an alignment of
effects of the strong dollar and a very weak China. China has started to factors that will not persist in 2023. The greenback is expensive, and
back away, slowly, from the policies that have been depressing activity. relative growth prospects point to a weaker dollar next year. Relative
If the dollar corrects lower as the US economy decelerates and inflation monetary policy will also tighten more outside the US, notably in Europe.
retreats, and the US avoids a bust, the world economy could be A weaker greenback will allow for some stability in EM currencies, which
stabilizing by this time next year. 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 Comerica Wealth Management

The dollar could continue rallying for longer than fundamentals justify. Given our base case, the mild-recession scenario, as well as the
Overshoots have been a characteristic of prior periods of dollar possibility for a hard landing scenario, it is important for investors to
strength. Around a durable dollar peak, we will look to add more non-US remain cautious and not get too aggressive during bear market rallies.
equities and bonds. We anticipate heightened market volatility in the months and quarters
ahead until the market gets comfortable with the potential for peaks in

In 2023, we look for a resumption of US dollar strength and a renewed Going forward, it’s reasonable to believe the US dollar will remain strong.
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bid for oil as geopolitical tensions remain elevated. Commodities But an equally compelling argument could be made that its current
including copper and gold are unlikely to gain traction until the Fed’s strength will not be sustained throughout 2023. If the Fed cools down
tightening campaign abates. 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,
did in 2022.

The dollar looks set to remain supported going into 2023 thanks to a We expect the dollar to move sideways against the euro and then to
hawkish US Federal Reserve and increased fears of a global recession. weaken significantly as the recession hits and risk premia favoring the
It should stabilize eventually and later weaken once US monetary policy dollar begin to diminish.
becomes less aggressive and growth risks abroad stabilize. We expect
emerging market currencies to remain weak in general.
Fidelity Generali Investments

If the Fed continues to raise rates, an even stronger dollar could Selected EM markets offer value after years of underperformance, with
accelerate the onset of recession elsewhere. Conversely, a marked dollar fatigue and China’s (mild) rebound both helping – we see EM as a
change in the dollar’s direction, potentially as its relative strength and target for positioning early for the post-recession environment.
economies.
The fundamentally overvalued dollar is past peak. The Fed’s final hike
looming for early spring 2023 is set to reduce rates uncertainty (a

Attractive valuations, a peaking US dollar and China policy support In currency markets, further dollar strength is still expected in 2023, but
creates opportunity for EMs in 2023. Importantly, dispersion between of a lower magnitude and different composition than in 2022. The Fed
individual markets in Asia has widened materially, and stock level pause should give the dollar’s rise a breather. Unlike in 2022, lower-
dispersion is even greater - reaching a point not seen since the global yielding currencies like the euro are expected to be more insulated as
financial crisis of 2008. This offers diversification benefits along with central banks pause hikes and the focus shifts to addressing slowing
opportunity for alpha. growth — but this in turn makes high-beta, emerging market currencies

U.S. dollar will peak in 2022 and declines through 2023. 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
NatWest NatWest
Relative growth and relative policy were clear dollar supports in 2022, If or when the dollar cycle turns is the key FX question heading into
but each are set to turn in 2023 and we expect the dollar falls back to 2023. While uncertainties remain and the growth outlook is fraught with
the pack, with increasing confidence by second quarter. CAD may risks, a passing of the peak in global economic pessimism could lead to
weaken as a high beta USD. A more mature dollar rally opens long EM some recovery in European currencies in 2023. China’s slow and
opportunities. 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
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We are bearish on the dollar due to worsening momentum and model With interest rate volatility subsiding, MBS and long-term corporate
readings. The dollar downtrend can be expected to continue as long as spreads should narrow, leading to outperformance. EM bonds should
nominal and real US bond yields continue to fall relative to non-US also be supported. And EM equities are likely to recover as EM
yields. 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.

Dollar weakness. Slower growth. A big drop in inflation. Muted equities. The dollar is likely to edge back from its multi-decade highs. This should
Bullish bonds. And a China rebound. All of this spells out the need for help support emerging markets equities, as should a widening growth
investors to remain cautious on risk assets – particularly through the differential between emerging and developing economies.
first half of the year.

The US dollar’s bull run has likely been exhausted and, once it has In our base case, 2023 will be a recession year that – once the three
convincingly changed direction, should brighten the relative outlook for peaks in inflation, rates and the dollar have been reached – will
both emerging markets and European global risk assets. The relatively ultimately contribute to a considerable brightening of the return outlook
attractive valuations outside the US suggest investors stand to gain for major asset classes. But we first need to brace for more pain in the
convincingly through global diversification. short term.
Robeco Robeco
While the dollar bull market could prove to be more persistent as the Emerging-market equities typically outperform once a dollar bear
Fed shows reluctance to pivot and as potential liquidity events trigger market enters the scene. Emerging markets are attractively valued
safe-haven flows towards the US, the dollar bull run will likely peak in versus their developed counterparts. In addition, the downturn in the
2023. This will be on the back of declining rate differentials between the earnings cycle in emerging markets is already more mature than
US and the rest of the world, and a peak in US growth versus the rest of developed market equities.
the world.

Schroders expects a reversal in the performance of global currencies in From a currency standpoint, we continue to gradually reduce our dollar
2023, where the US dollar may weaken. On the other hand, the weighting (down another five points to 48%) but take new positions on
Japanese yen may regain its strength, providing a hedge against the EM currencies (plus four points to 19%), including in Emerging Europe.
impact of a semiconductor downcycle on other Asian economies and We prefer the euro to the yen and have no exposure to sterling.
currencies.
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.

The softening of the dollar would be net positive for emerging-market A slowdown in the pace of Fed rate hikes should narrow rate
local debt, as in the months when EM currencies rallied, EM local debt’s differentials, softening dollar strength. Given the level of overvaluation,
return was positive 86% of the time with an average monthly gain of economic surprises — such as a sooner-than-expected Fed pivot —
2.27%. as a result of the demoralizing returns, a potential dollar bear easily could push the US currency lower in 2023.
allocation offers a generationally attractive yield that just may be worth
the risk.

Dollar outlook hinges on the intersection of global growth, terminal rate Within equities, we retain a US bias. Overseas markets remain cheap on
pricing, and terms of trade. While peak dollar is here, global growth isn’t a relative basis, but valuation is a condition not a catalyst. Given the
strong enough to warrant a reversal yet. Expect consolidation in the first weak global economic backdrop we expect next year, the US economy
quarter and a deeper correction afterwards. should remain a relative outperformer, and while the upward momentum

As US carry advantage and rates volatility fade more rapidly than in a In currencies, we believe we have moved from a strong, trending US
typical recession, we expect the dollar to slowly fall against G-10 dollar to more of a rangebound trade in USD. Our catalysts for a broad
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currencies. Its fall should be limited, however, by weak global growth, a turn in the dollar are for the Fed to stop hiking interest rates, China’s
key driver for the dollar. We prefer AUD and NZD over CAD, and NOK zero-Covid-19 policy to end, and energy pressures in Europe stemming
over SEK. We see Asia in particular under pressure in the first half amid from Russia’s invasion of Ukraine to subside. None of these have fully
a weak trade backdrop, low carry and a need to rebuild depleted FX happened yet, but all three appear to be getting closer. A more
reserves. rangebound dollar coupled with a global economy that is still growing,
peso.

The dollar is set to further loosen its grip, but its strength is unlikely to The dollar will stay stubbornly strong through the first half of 2023. The
be fully reversed. By the end of our forecast horizon, we expect EUR� market is too sanguine the European/UK energy situation - deeper-
USD to climb to 1.10-1.12 and we see GBP�USD back above 1.20, USD� than-expected recessions in euro zone/UK vs. resilient US growth
JPY below 135 and USD�CNY down to 6.90. We remain bearish on the keeps upward pressure on the broad dollar. By mid-year we call for
CEE3 currencies, the TRY and the RUB. 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.

Relative growth outlook supports dollar gains. Growth expectations for Dollar strength early in the year should flatten and partially reverse its
2022/23 have mostly moved against the dollar this year. Wells Fargo upward trajectory, as slowing inflation and Federal Reserve interest-rate
Economics is much further below consensus on growth in the UK and cuts in the second half of 2023 remove a key source of support.

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.
EARNINGS

Given decelerating global growth and a profit recession in the first half Even after the significant de-rating already seen, stock markets are still
of 2023, investors should remain defensive for now with gold and vulnerable to the expected earnings recession.
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.

Going into 2023, one expected shock remains: recession. The US, euro With inflation, the dollar and Fed hawkishness peaking in the first half of
area and UK are all expected to see recessions next year, and the rest 2023, markets are expected to tolerate more risk later in the year. The
of the world should continue to weaken, with China a notable exception. S&P 500 typically reaches its bottom six months ahead of the end of a
The recession shock likely means corporate earnings and economic recession, and as a result, bonds appear more attractive in the first half
growth will come under pressure in the first half of the year, while at the of 2023, while the backdrop for stocks should be better in the later half.
same time, China’s reopening offers a reprieve for certain assets. We expect the S&P to end the year at 4,000 and S&P earnings per

We expect new lows for equities in 2023. The 2022 correction has been Higher for longer rates – with divergence favoring the dollar - tightens
mostly valuation-driven, and we expect 2023 to be all about earnings, global financial conditions and sets off a global recession, denting
supporting higher realized volatility. corporate earnings and risk assets through the first half of 2023.
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Carmignac Citi
In equity markets, while the drop in valuations appear broadly consistent We see dollar performance split next year. For the first several months,
with a recessionary backdrop, there are wide disparities between we’d expect a resumption of risk asset underperformance, likely via the
regions - even more so on earnings. The eyes of global investors are earnings channel for equities. This likely keeps the dollar supported as it
focused on Western inflation and growth dynamics. Looking towards has a strong inverse correlation between with equities. Moving into the
the East should prove salutary and offer most welcomed diversification. second half of 2023, the dollar could enter into a depreciation regime.

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
Columbia Threadneedle Comerica Wealth Management

We will see greater dispersion in terms of valuation in 2023, with longer We expect a retest of the October lows (around 3,500) in the S&P 500
duration equity – companies with growth expectations farther out in the Index, before investors price in a policy response and begin discounting
future – suffering more. Investors will have to be more careful about recovery in late 2023 and early 2024. This scenario should experience
what they are willing to pay for future earnings, and demands for flat profits in 2023 and expectations of 5% earnings gains in 2024, and
profitability will come sooner. All of this will mean that companies that we would view the S&P 500 as fairly valued within the range of
aren’t able to deliver earnings are more likely to see the market take 4,100-4,200 within the next 12 months.
down their valuation.

Should global conditions worsen and a deeper recession, or hard Given our base case, the mild-recession scenario, as well as the
landing ensues it’s conceivable that S&P 500 profits decline to the possibility for a hard landing scenario, it is important for investors to
$200 range in 2023. In this scenario, we do not expect technical remain cautious and not get too aggressive during bear market rallies.
support to hold at 3,500 for the S&P 500. Instead, we view a more We anticipate heightened market volatility in the months and quarters
typical recession-like P/E multiple of 15x to result, therefore taking the ahead until the market gets comfortable with the potential for peaks in
Index down to the 3,000 range. market interest rates, the dollar, and monetary policy along with troughs

Industry analysts currently expect S&P 500 earnings growth to be in the We see 2023 as a tale of two halves. Markets are likely to first focus on
high single digits by the end of the year, with 2023 growth in the 5% the “higher rates for longer” theme, which should lead to a muted equity
range. We believe these expectations are reasonable, especially if the performance. We expect sectors and regions with stable earnings, low
labor market and consumer spending remain healthy and inflation leverage and pricing power to fare better in this environment. Once we
weakens. 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.

The time will come to allocate back into equities too. But for now, the The impact of inflation on listed infrastructure in 2023 should be muted,
deteriorating environment is not reflected in earnings forecasts or particularly for regulated assets, which often have inflation adjustment
valuations, implying there could be further downside to come. We clauses. Infrastructure earnings look better protected in general than
expect volatility to remain high, and sentiment is low enough that sharp global equity earnings, in our view.
risk-on bounces will be likely, if short-lived.
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
Hirtle Callaghan HSBC Asset Management

In the case of a soft landing, the picture is brighter for equities if Inflation should still be persistently high for much of 2023, and on the
investors can look through this next year’s earnings. Valuations have back of rapid tightening by the Federal Reserve we are forecasting a
come down significantly, pricing in much of the bad news for this recession for the US in 2023 - a corporate profits recession in the first
coming year. We are positive on the outlook for corporate growth half of the year, followed by a GDP recession.
looking a couple of years out if the Fed can achieve the soft landing it is
hoping for.
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For equities, we think price to earnings ratios in developed markets have JPMorgan Research is reducing its below consensus 2023 S&P 500
scope to fall given where bond yields are. But the big risk remains earnings per share (EPS) of $225 to $205 due to weaker demand and
corporate earnings downgrades, which will probably be a driver of weak pricing power, further margin compression and lower buyback activity.
equity market performance.

The convergence between the US and international markets should The broad-based sell-off in equity markets has left some stocks with
continue next year, both on a dollar and local currency basis. The S&P strong earnings potential trading at very low valuations; we think there
500 risk-reward relative to other regions remains unattractive. are opportunities in climate-related stocks and the emerging markets.

While falling earnings forecasts could lead stocks lower, if the Even though we expect a challenging macroeconomic environment in
magnitude of the decline in earnings is moderate – as we expect – then 2023 and downward corporate earnings revisions, we think income
it would likely only lead to limited further downside for reasonably stocks could have a good year with dividends proving more resilient
valued stocks, relative to the declines already seen in 2022. 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 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.

Equities next year, however, are headed for continued volatility, and we While earnings will face increased headwinds in the first half, we
forecast the S&P 500 ending next year roughly where it started, at nevertheless see scope for IG corporates to post a strong annual total
around 3,900. Consensus earnings estimates are simply too high, to the return, helped by an (eventual) rates pivot by central banks, and a
point where we think companies will hoard labor and see operating healthy excess return by the second half. Such an outlook demands
margins compress in a very slow-growth economy. investors increase their weighting into cyclicals as 2023 evolves.

We are neutral on US stocks on an absolute basis and relative to bonds We think the next 12 months are likely to see this cycle’s peaks in global
and cash. Macro and earnings concerns are offset by extreme inflation, central bank policy tightening, core government bond yields
pessimism and technical improvements. We favor small-caps over large- and market volatility, as well as troughs in GDP growth, corporate
caps and Value over Growth. We are overweight Europe equities earnings growth and global equity market valuations. But we do not
excluding the UK and marketweight on all other international regions. believe this will mark a reversion to the post-2008 “new normal”. We

Consensus earnings growth estimates for 2023 did not fall in the same In equities, risks surrounding fundamentals are tilted to the downside
way as real GDP growth estimates, perhaps because high inflation has given the extent of cumulative central bank tightening. Pockets of
supported nominal GDP growth. As inflation turns downward but economic durability should limit a US earnings slowdown, while
remains relatively high as the economy slows, we think earnings monetary policy offers a bit more support elsewhere. Keeping us equal-
estimates are likely to be revised down. We also think dispersion will weight is the potential for sentiment upside. From beaten down levels,
increase, favoring companies that are less exposed to labor and sentiment has runway to improve — particularly in Europe where the
commodity costs and have more pricing power to maintain margins, and valuation discount is steep.
use less aggressive earnings accounting. We believe this will translate
Nuveen Pimco
We should continue to see pockets of strength across global equity The economy in developed markets is under growing pressure as
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markets on specific catalysts such as perceived dovish messaging from monetary policy works with a lag, and we expect this will translate into
central banks or even a moderation of rate hikes, but the risks pressure on corporate profits. We therefore maintain an underweight in
surrounding earnings, employment and contractionary manufacturing equity positioning, disfavor cyclical sectors, and prefer quality across
data lead us to believe we’re not yet out of the equity bear market. 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
Robeco Robeco
Comparing high yield valuations with those of equities, high yield looks Emerging-market equities typically outperform once a dollar bear
more attractive at this stage. We expect an earnings recession to gain market enters the scene. Emerging markets are attractively valued
traction as we enter 2023: earnings per share could drop 20-30%. This versus their developed counterparts. In addition, the downturn in the
is not yet fully recognized by the equity market. earnings cycle in emerging markets is already more mature than
developed market equities.
Schroders Schroders
Schroders expects 2023 to usher in a turning point for global equities We tend to focus on resilient companies that are of high profit margins
after the sharp corrections seen year-to-date this year. Valuations are and low leverage ratios. Usually, these are quality stocks that can
now at more attractive levels where investors may look to quality generate profits even in tough, recession-prone environments.

The impact of tighter monetary policy is likely to be reflected in Asia is at the end of the earnings downgrade cycle, making cheap Asian
lackluster earnings. Inflation has likely peaked already, and the assets look attractive.
trajectory of monetary policy is unlikely to be more hawkish than what

Fair value for the S&P 500 currently reads at 3,650 based on our The Fed can’t hike rates forever. Eventually earnings cynicism will find a
inflation moderation valuation framework. But we expect negative EPS bottom and optimism will be repriced. In the meantime, positioning
growth in the first quarter, a Fed pivot in the second, China re-opening in portfolios for the fundamental weakness washing over the world, while
the third and rising US recession risk in the fourth. This should see the acknowledging the potential for future positivity, takes combining
S&P 500 trading in a wide range of 3,500 to 4,000, around that 3,650 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.

A policy pivot could potentially renew sentiment toward more cyclical The one- to three-year investment-grade space, a segment carrying an
segments of the market and usher in hope for earnings positivity off a index-weighted average rating of A3/BAA1, represents a high-quality
very cynical base. But the timing is uncertain. While a pivot is getting value opportunity to pick up a yield that is on par with the US equity
closer, as the Fed enters the later stages of its hiking cycle and market earnings yield (5.1%) and above that of the broader US
earnings continue to be revised lower, the change in trend is unlikely to aggregate bond market (4.7%), without taking on any more duration or
occur right away. credit risk than one would have assumed over the past 20 years in this
portion of the credit market.

Non-US equities now trade at 12.17 times next year’s earnings, 20% In 2023, earnings growth could move to the top of the list of investor
below their historical median average of 14.94. The same is true under a concerns.
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Forward corporate earnings have not started correcting for the The equity market’s reset is a positive for longer-term returns. However,
recession. We expect wider credit spreads, decompression between the near-term risk/reward remains unfavorable given elevated recession
high-yield vs investment grade, and focus on higher-quality, lower- risk, uncompelling valuations, and downside earnings risk.Our shorter-
maturity exposures. term, tactical outlook leads us to remain defensive heading into 2023.
Truist Wealth UBS

Historically, earnings around recessions have averaged a drop of almost Stocks are pricing in only 41% and 80% probabilities of a recession in
20%. We don’t necessarily believe that earnings have to fall that far the US and Europe, respectively. Weak growth and earnings drag the
given how well corporations have navigated the pandemic and the fact market lower before a fall in rates helps it bottom at 3,200 in the second
that elevated inflation raises nominal sales figures, but there remains quarter and lifts it to 3,900 by the end of 2023. With revenues and
downside risk. margins under greater pressure, Eurostoxx is likely to do worse,
bottoming in the second quarter at 330 & ending 2023 at 385. As a part

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 Vanguard
Following a volatile sideways movement early in the year, equities have In credit, valuations are fair, but the growing likelihood of recession and
potential to rise by about 10% in 2023, primarily supported by valuation declining profit margins skew the risks toward higher spreads. Although
expansion. Earnings growth should be flat and is unlikely to accelerate credit exposure can add volatility, its higher expected return than US
before 2024. Our 2023 year-end index targets are Euro Stoxx 50 at Treasuries and low correlation with equities validate its inclusion in
4,200, the DAX at 15,500 and the S&P 500 at 4,300. portfolios.

We expect a U.S. recession in the first half of 2023, as well as a We expect earnings to contract in 2023 as the recession leads to
continued global economic slowdown, as last year’s hawkish monetary declining revenues and profit margins. Valuations should rebound in
policy and money growth slowdown works with a lag. That should drive 2023 to lift equity markets by year-end as early cycle dynamics begin to
down corporate earnings growth and create important inflection points take hold.

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.
DEFAULTS
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Defaults will rise a little but we have little concern about a large wave of The end of Fed hikes and more conservative corporate balance sheet
refinancing-related defaults. Given the close relationship between the management lead to a positive backdrop for credit: Weaker prospects
excess returns of high-yield bonds (relative to government bonds) and for growth and higher rates lead managements to shift prioritization to
equity returns, we see high yield as a relatively lower risk option on an debt reduction from share buybacks and capex. Total returns of
eventual recovery in equity returns. approximately 9% are expected in investment grade credit in 2023 in
Carmignac DWS
Corporate credit offers interesting opportunities, because on the risk On the credit side, there are currently no excessively high risks in sight.
side, the expected rise in default rates is already largely incorporated in Senior bank bonds and hybrid corporate bonds with yields of 6% to 7%
current prices. And on the reward side, embedded yields are at levels are particularly promising. Also interesting are the riskier euro high-yield
consistent with the long-term outlook for equities. bonds, which currently have yields of 7.3%. At 0.7%, default rates are at

Were the US to head into recession next year, credit defaults would rise Investment-grade corporates look like an attractive place to us for
significantly. So far, the market is yet to reflect these risks, notably in investors seeking relatively safe income. High-yield credit looks
high yield credit. Prudent credit selection within high yield is therefore attractive for investors with a multi-year time horizon, in our view, as
essential. current yields and active selection provide a cushion for potentially
near-term higher defaults in the sector.
Generali Investments Morgan Stanley

We stay defensive on high yield, as defaults are starting to pick up and Investors should keep a close eye on quality. US high-yield corporate
spreads seem to be mispricing the developing recession pressures. 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.

High yield remains our biggest tactical overweight. We expect default We’re growing a bit more wary toward credit risk as recession indicators
rates to rise off of record lows but remain below the long-term average rise, which could cause some spread widening. We think corporate
given strong credit fundamentals that support issuers’ ability to pay and credit fundamentals remain solid and we’re not expecting a significant
a benign maturity schedule. Combined with an improved high yield rise in defaults since most companies have been focusing on improving
market quality and income yield of around 8%, we find high yield their balance sheets.
attractive.
Pimco State Street

Once a recession is underway and the initial deleveraging is mostly Weak sentiment is likely to extend to defaults. Trailing 12-month defaults
done, we expect high quality investment grade credit spreads would on a par-weighted basis are projected to increase from 1.3% to 6% over
also begin to tighten. This year, the initial condition of corporate balance the next 12 months — well above their historical 3.3% median.
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.

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.
VOLATILITY
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Investors should be less confident about capital growth strategies as US rates stay elevated but expect a decline by year end 2023. The yield
we enter 2023. Bond returns should improve relative to volatility and curve is expected to dis-invert and rates volatility should fall. Both two-
parts of the equity market are becoming cheap. As 2023 unfolds, there year and 10-year US Treasuries should end 2023 at 3.25%. Sectors hurt
should be more clarity on the macro outlook. This should support by rising rates in 2022 may benefit in 2023.
positive, albeit prudent, portfolio return expectations.
Bank of America BlackRock Investment Institute

After a volatile start to 2023, emerging markets should produce strong The new regime of greater macro and market volatility is playing out. A
returns. Once inflation and rates peak in the US and China reopens, the recession is foretold; central banks are on course to overtighten policy
outlook for emerging markets should turn more favorable. China as they seek to tame inflation. This keeps us tactically underweight
equities will likely strengthen due to a reversal in both zero-Covid and developed market equities. We expect to turn more positive on risk
property tightening. assets at some point in 2023 – but we are not there yet. And when we

We see private markets as a core holding for institutional investors. The The dollar continues to face negative structural factors and the US yield
asset class isn’t immune to macro volatility and we are broadly advantage is probably peaking. However, we expect risk-off market
underweight as we think valuations could fall, suggesting better moves to provide safe-haven support to the dollar over the next three to
opportunities in coming years than now. Yet for strategic investors, six months. When risky assets base, we expect the dollar to peak and to
asset classes such as infrastructure could provide a way to play into end 2023 at weaker levels than present. In general, duration-sensitive
structural trends. 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 Comerica Wealth Management

We expect new lows for equities in 2023. The 2022 correction has been Fixed income investors likely have seen the worst of price depreciation
mostly valuation-driven, and we expect 2023 to be all about earnings, and can now look for improved yields to contribute to total return. After
supporting higher realized volatility. 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.

We remain cautious on longer-term US Treasuries in the coming months Given our base case, the mild-recession scenario, as well as the
as persistently high inflation will likely lead to further volatility as possibility for a hard landing scenario, it is important for investors to
investors demand a higher-term premium. We believe shorter-dated remain cautious and not get too aggressive during bear market rallies.
Treasuries, however, are closer to pricing in a peak for policy rates and We anticipate heightened market volatility in the months and quarters
offer relatively attractive income opportunities. ahead until the market gets comfortable with the potential for peaks in

Another investment-grade sector that is presenting attractive value as With inflation likely to normalize in 2023, fixed-income assets should
of late is the corporate space, specifically A-rated securities. In tax-free become more attractive to hold and offer renewed diversification
and tax-deferred accounts, we believe the current yield can be an benefits in portfolios. US curve “steepeners,” long-duration US
attractive prospect for investors willing to accept some level of volatility. 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
Deutsche Bank Fidelity

Equity markets are projected to move higher in the near term, plunge as We believe defensive positioning will remain important for investors
the US recession hits and then recover fairly quickly. We see the S&P going into 2023. Cash and uncorrelated assets will form a key
500 at 4,500 in the first half, down more than 25% in the third quarter, component of multi asset portfolios until volatility subsides. Government
and back to 4,500 by year end 2023. bonds are also likely to have a role to play, especially now that yields are
85 of 115 09/01/2023, 10:00 a.m.

much more attractive.

The time will come to allocate back into equities too. But for now, the Recession and subsequent recovery may well be rapid and create
deteriorating environment is not reflected in earnings forecasts or market volatility. We believe it will be as important as ever to be
valuations, implying there could be further downside to come. We diversified and actively select investments, particularly when tilting
expect volatility to remain high, and sentiment is low enough that sharp toward risk assets.
Franklin Templeton

Equity multiples dropped in 2022 but appear too high still relative to real The fundamentally overvalued dollar is past peak. The Fed’s final hike
bond yields. Earnings consensus for 2023 (single digit positive) also looming for early spring 2023 is set to reduce rates uncertainty (a
appears too optimistic. Our sector/style preference is mixed, but previous dollar boost) and path the way to narrowing yield gaps vs
cyclicals look rich at the turn of the year, while the 2022 major peers. Initially, the transition is likely to prove volatile, though. The
outperformance of value will run out of steam along with bond yields. euro is still to feel the pain from recession and the energy crunch,
Over 12 months, thanks to bottoming earnings, the end of central bank leaving the currency shaky near term. But fading recession forces by
tightening, and a continuing fall in bond volatility, we expect positive early spring may mark the start of ensuing capital inflows to the euro
total returns of 3% to 6%. area and a more sustained euro recovery.
Goldman Sachs JPMorgan

While bonds have been especially volatile of late, there are signs that The good news is that central banks will likely be forced to pivot and
these swings are peaking. Higher yields have also reduced the duration signal cutting interest rates sometime next year, which should result in a
risk (the risk that a bond’s price will fall as rates climb) for fixed-income sustained recovery of asset prices and subsequently the economy by
assets at the same time that economic growth is becoming more of a the end of 2023. The bad news is that in order for that pivot to happen,
concern. That all suggests that risks are piling up for the equity market we will need to see a combination of more economic weakness, an
next year while bonds might become less risky. increase in unemployment, market volatility, decline in levels of risky

The S&P 500 will tread water, ending 2023 around 3,900, but with Equities next year, however, are headed for continued volatility, and we
material swings along the way. 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.

A choppy equity uptrend is likely in 2023, and a severe global recession We are watching for better Technology stock performance to support
would increase the correction risk and elevate the volatility. But our global breadth and US relative strength. While a risk for Europe is that
base case is that 2023 will include increasing confirmation that global too much good news has been discounted too early, a choppy uptrend
equities have entered a cyclical bull market that started with the is likely for European equities. Cyclical sectors should outperform
October lows, reconfirming the continuation of the secular bull market defensive sectors.
that started in 2009.
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.

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Among liquid alternatives, we think global macro and other trading- Northern Trust expects 2023 to be a turbulent year as conditions pivot
oriented hedged strategies can continue to find opportunity amid from inflation and monetary policy fears to a weak global economy, but
volatility. We anticipate increasing opportunities to provide niche capital the firm also expects market volatility to somewhat temper due to lower
solutions at attractive or even stressed yields as debt structures are inflation and a pause in central bank interest rate increases. A reduction
reworked. And on the illiquid side, we think private equity secondaries in rates is not seen as likely. We see downside risk from lower corporate
has become a buyers’ market. Economic strains could also open up profits and revenues, but with upside potential from better sentiment.
long-term value opportunities in inflation-sensitive real assets, in
markets both liquid (certain commodities) and illiquid (real estate).

While China’s reopening incrementally improves the outlook for Investment grade fixed income is our largest underweight. Barring a
emerging market equities, the reopening process is likely to be bumpy. significant economic downturn, the magnitude of any longer term rate
We prefer to play the China reopening through non-EM assets, and decline should be limited and potentially more constructive for risk
have a bias for developed market equities where there is greater clarity. asset returns. We prefer credit over term (interest rate) risk, especially
as rate volatility remains high.

We are equal-weight inflation-linked bonds on the basis that central We are equal-weight both global real estate and listed infrastructure.
banks have the tools and perceived willingness to contain inflation, but Global real estate valuations make for a compelling long-term
that this is mostly reflected in valuations and the path back toward investment opportunity, but interest rate volatility keeps us at a strategic
target levels may prove difficult. 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 Nuveen
We believe inflation is moderating, which should provide some tailwinds Headwinds for private real estate are rising, and we expect volatility will
for stocks in 2023. In particular, we favor dividend-growers, an area persist (and perhaps rise). One approach to this more challenging
where relatively higher income can help offset price return volatility. 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 Societe Generale

While the Federal Reserve will hike a few more times in 2023, it is likely Systemic risks are a common feature after a round of policy tightening
nearing the completion of its tightening cycle. This implies that bonds of this kind. Holding gold and the Swiss franc can help stabilize portfolio
will be able to support portfolios as recession approaches, with volatility, in our view.
government bond yields under downward pressure and securitized debt
typically providing protection during periods of volatility and risk.
T. Rowe Price Truist Wealth

The balance between central bank tightening, high inflation, and slowing We anticipate a continuation of this year’s elevated rate volatility and
growth could produce rate volatility. Higher yields, especially for high strained liquidity conditions in 2023.
yield bonds, are supported by strong fundamentals and can help
provide a buffer against credit weakness.

Macro and cross-asset volatility are unlikely to fade away along with the In credit, valuations are fair, but the growing likelihood of recession and
calendar year. And the distribution of outcomes remains much wider declining profit margins skew the risks toward higher spreads. Although
than investors became accustomed to in the previous cycle. Our focus credit exposure can add volatility, its higher expected return than US
is therefore on positioning over the coming months as opposed to the Treasuries and low correlation with equities validate its inclusion in
coming year, and we are ready to pivot as the business cycle evolves. 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.
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YIELDS

As bonds regain diversification qualities after the surge in yields in 2022 For bond markets, the trade-off between return and risk has improved.
and looming recession risks next year, a revival of the 60-40 portfolio Yields are higher – compared to the situation in recent years – and this
allocation is in sight. 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.

For now, it is an environment that supports exposure to the shorter Today’s yields are significantly higher than in recent years. This provides
maturity part of bond markets. Such strategies currently provide the attractive return potential as corporates have generally managed
highest yields seen for years. Extending duration along the curve also balance sheets well, terming out debt, containing leverage levels and
locks in better yield and provides optionality to recognize capital gains ensuring healthy interest coverage. Over the medium term, today’s
once markets start to anticipate central banks easing. Our base case is spreads will allow investors to benefit from capital gains when
that this is unlikely until late 2023 or 2024, but markets tend to look corporate fundamentals do improve.
forward to these events.

Core credit investment strategies can achieve higher yields with less US rates stay elevated but expect a decline by year end 2023. The yield
credit risk. Subsequently investors need not chase returns in more curve is expected to dis-invert and rates volatility should fall. Both two-
economically-sensitive sectors when more defensive credit sectors year and 10-year US Treasuries should end 2023 at 3.25%. Sectors hurt
offer attractive yields. by rising rates in 2022 may benefit in 2023.
BCA Research BlackRock Investment Institute

Global bond yields will move sideways in the first half of next year, as Higher yields are a gift to investors who have long been starved for
the impact of falling inflation broadly offsets the impact of better-than- income. And investors don’t have to go far up the risk spectrum to
expected growth data. Yields should drop modestly in the second half receive it. We like short-term government bonds and mortgage
of the year as the US economy edges closer to recession. securities for that reason.

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
eventually fall.

We are increasingly confident about the destination of bond markets in We expect a rebound for corporate bonds in 2023. Again, there will be
2023, and that is toward a disinflationary environment. We are less sectors that need to be avoided, and specific credits that might be
certain about the path and timing of the journey. The bond math now impaired. However, broadly speaking, today offers a very attractive
works in favor of the asset class, meaning that the coupon return will staring point, i.e. the “bond math” works for the investor.
become a more influential source of the total return for bonds.
Carmignac Carmignac
Corporate credit offers interesting opportunities, because on the risk On the sovereign bond side, weaker economic growth is generally
side, the expected rise in default rates is already largely incorporated in associated with lower bond yields. However, given the inflationary
current prices. And on the reward side, embedded yields are at levels environment, while the pace of tightening may slow or even stop, it is
consistent with the long-term outlook for equities. unlikely to reverse soon.

Broader investment-grade bonds offer a range of higher yields at every Fixed income investors likely have seen the worst of price depreciation
maturity. And loans in private markets – think private equity lending – and can now look for improved yields to contribute to total return. After
offer larger yield premiums with lower loan-to-value ratios than at any enduring a volatile start to 2023, we look for market interest rate
time since 2008-09. volatility to settle down, with the yield on the benchmark 10-year
Treasury finishing the year in the 3.75% range.
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Given this backdrop, our fixed income positioning favors quality, with In the municipal bond space, we favor investment grade over high yield
investment grade corporate bonds offering a combination of relative offerings, particularly given their attractive tax-equivalent yields. The
valuation and income. The current volatility in bond yields leads us to market for mortgage-backed securities, however, faces further
take interest rate risk on corporate credit over government bonds, as challenges due to the combination of a tighter Fed, rising mortgage
these securities offer quality ratings and strong balance sheets. We rates, a slowdown in housing, and the end of monetary support.
encourage investors not to get caught up in the pursuit of higher
yielding bonds.
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.

Another investment-grade sector that is presenting attractive value as For investors with a high risk tolerance, emerging market debt offers
of late is the corporate space, specifically A-rated securities. In tax-free some of the most attractive yields in the fixed income space.
and tax-deferred accounts, we believe the current yield can be an
attractive prospect for investors willing to accept some level of volatility.
Deutsche Bank DWS

The 10-year Treasury yield is projected to remain in its recent range in On the corporate side, profits are likely to come under pressure, but
the months to come, and then rally moderately around midyear as the much less so than in past recessions. In view of the higher interest rate
US downturn approaches. The German Bund yield should rise to 2.60% level, bonds are significantly more attractive than in the past, as a yield
by the second quarter before remaining relatively stable in comparison generator and as a diversification instrument. In general, however, the
to Treasury yields. return prospects of risk assets are limited, but high enough to be able to
beat inflation.
DWS DWS
On the credit side, there are currently no excessively high risks in sight. The yield advantage of real estate investments over 10-year government
Senior bank bonds and hybrid corporate bonds with yields of 6% to 7% bonds has shrunk significantly in 2022; real estate valuations have come
are particularly promising. Also interesting are the riskier euro high-yield under pressure. This trend is likely to reverse next year.
bonds, which currently have yields of 7.3%. At 0.7%, default rates are at

We believe defensive positioning will remain important for investors Investment-grade corporates look like an attractive place to us for
going into 2023. Cash and uncorrelated assets will form a key investors seeking relatively safe income. High-yield credit looks
component of multi asset portfolios until volatility subsides. Government attractive for investors with a multi-year time horizon, in our view, as
bonds are also likely to have a role to play, especially now that yields are current yields and active selection provide a cushion for potentially
much more attractive. near-term higher defaults in the sector.
Franklin Templeton

We see 10-year Treasuries trading at 3.25% at the end of 2023. We are To get extra yield, we recommend going for long duration in investment
less confident about Bunds, despite our slightly less hawkish ECB views grade, although curves are already very flat, and to favor subordination
(relative to market pricing). risk to credit risk except in the real estate sector.

After a sharp increase in bond yields this year, new and potentially less Strategists at Goldman Sachs expect yields on two- and 10-year
risky alternatives are emerging in fixed income: US investment grade Treasuries to rise higher before they peak in the first half of 2023.
89 of 115 09/01/2023, 10:00 a.m.

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%.

With inflation still running hot, central banks are more likely to try to cool Within credit, we remain slightly underweight duration but will extend to
economic growth and tighten financial conditions than to boost them. the full duration of the benchmark as rates rise from here. We still like
And if they don’t fight inflation, there’s a risk that longer-dated bond TIPS in this environment. The real yield has come down slightly (with the
yields will increase anyway because of rising long-term inflation five-year TIPS real yield at 1.5%), but they have the benefit of offering
expectations. inflation protection.
Hirtle Callaghan Hirtle Callaghan

We continue to watch corporate credit spreads. Today they are at the We also like private credit where we see greater opportunity with
high end of the normal range and we don’t have high yield as a covenants getting stronger. When money was “cheap” covenants were
component of our core portfolios. However, we view high yield lighter and offered less protection to investors. That environment has
opportunistically and are watching for them to widen and become more changed, and we believe private credit offers attractive yields with
attractive. 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
JPMorgan JPMorgan
10-year U.S. Treasury yields are expected to fall to 3.4% by the end of Relative to base metals, the outlook for precious metals is more positive,
2023 and real yields are expected to decline. 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.

Looking forward, it is clear that the income on offer from bonds is now Given this uncertainty about inflation and growth, and the chunky yields
far more enticing. The global government bond benchmark has seen available in short-dated government bonds, investors might want to
yields rise by roughly 200 basis points since the start of the year, while spread their allocation along the fixed income curve, taking more
high-yield bonds are again worthy of such a title with yields approaching duration than we would have advised for much of the year.

Within credit markets, we believe that an “up-in-quality” approach is Value stocks are now quite reasonably priced compared with history.
warranted. The yields now available on lower quality credit are certainly We have stronger conviction that value stocks will be higher by the end
eye-catching, yet a large part of the repricing year to date has been of 2023 than we do for those growth stocks that still look expensive.
driven by the increase in government bond yields. High yield credit However, a peak in government bond yields could provide some support
spreads still sit at or below long-term averages both in the US and to growth stock valuations in 2023.

Bond yields rose considerably in 2022, offering attractive valuations and The considerable rise in bond yields, to levels not seen in almost 15
strong protection levels for investors in investment grade, high yield years, offers attractive valuations and strong protection levels.
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.
Morgan Stanley
10-year Treasury yields will end 2023 at 3.5% vs. a 14-year high of
4.22% in October 2022.
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With the US expected to enter a recession starting in the first quarter Bonds could easily rally through yield support levels on evidence of
and lasting through to the second, and with our expected terminal Fed recession, slowing inflation, and shifting policy. We raised our bond
funds rate of 5% well-priced, we look for yields to peak if they have not exposure to 100% of benchmark duration and are neutral on the yield
already—we see 10-year yields ending 2023 at 3.35%. curve. We are overweight Treasuries and MBS and underweight high

We are currently bullish gold. The majority of our Gold Watch report We are bearish on the dollar due to worsening momentum and model
indicators are now bullish and gold stands to benefit from seasonality readings. The dollar downtrend can be expected to continue as long as
and declining bond yields. nominal and real US bond yields continue to fall relative to non-US
yields.


Among liquid alternatives, we think global macro and other trading- High yield remains our biggest tactical overweight. We expect default
oriented hedged strategies can continue to find opportunity amid rates to rise off of record lows but remain below the long-term average
volatility. We anticipate increasing opportunities to provide niche capital given strong credit fundamentals that support issuers’ ability to pay and
solutions at attractive or even stressed yields as debt structures are a benign maturity schedule. Combined with an improved high yield
reworked. And on the illiquid side, we think private equity secondaries market quality and income yield of around 8%, we find high yield
has become a buyers’ market. Economic strains could also open up 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 Pimco

We are neutral duration risk. In 2023 we expect Fed rate hikes to total We see ample evidence that both the near- and long-term case for fixed
0.50% to 0.75%, to reach a steady policy rate of 5%, likely sufficiently income is strong today. Higher starting yields have increased long-term
high for a Fed pause. Treasury yields are likely move slightly higher but return potential, while higher-quality bonds should resume their role as a
remain stable thereafter as we think labor market strength will make the reliable diversifier against equities if a recession materializes.
US.
Pimco Principal Asset Management

In the US, unlike previous cycles, we do not expect a rapid transition While the Federal Reserve will hike a few more times in 2023, it is likely
from Fed hikes to rate cuts and the ensuing market support. But even nearing the completion of its tightening cycle. This implies that bonds
without a significant rate rally, US Treasury yields are already high will be able to support portfolios as recession approaches, with
enough to offer compelling return just from the income alone. In government bond yields under downward pressure and securitized debt
addition, a stabilization in rates could draw more investors back into the typically providing protection during periods of volatility and risk.
asset class.

Within credit markets, the longer duration, high quality profile of Comparing high yield valuations with those of equities, high yield looks
investment grade should be capitalized. Importantly, credit now offers more attractive at this stage. We expect an earnings recession to gain
considerably more attractive yields than in recent years, finally meriting traction as we enter 2023: earnings per share could drop 20-30%. This
portfolio allocation. is not yet fully recognized by the equity market.
Robeco Societe Generale

While the dollar bull market could prove to be more persistent as the We remain confident that 10-year US treasury yields have peaked or are
Fed shows reluctance to pivot and as potential liquidity events trigger close to peaking in a 4% to 4.5% range, with a capital gains potential by
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safe-haven flows towards the US, the dollar bull run will likely peak in end-2023, as the Fed continues to provide more color on the nature of
2023. This will be on the back of declining rate differentials between the its pivot. They have already announced a lower magnitude of rate hikes,
US and the rest of the world, and a peak in US growth versus the rest of after which we can expect a no-hike stance, before markets should then
the world. start to price in expectations of rate cuts. We prefer EM bonds to US
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.

What’s the upshot for bond portfolios if we see more of what we saw in When viewed relative to US investment-grade corporate bonds, the
2022 for most of 2023? Core bonds with over six years of duration are yield differential of high yield is tighter than the long-term historical
likely to once again post duration-induced price declines. Meanwhile, average. This indicates that investment-grade corporate bonds have a
shorter-duration segments may offer more attractive yield and total slightly more relative attractive yield profile given the many fundamental
return prospects as result of less rate risk. risks in the market.

Higher rates have created attractive defensive yield opportunities on the The one- to three-year investment-grade space, a segment carrying an
short end of the curve — namely Treasuries with less than one-year of index-weighted average rating of A3/BAA1, represents a high-quality
maturity given the recent inversion of the three-month and 10-year yield value opportunity to pick up a yield that is on par with the US equity
spread. An aggressive Fed and the likelihood for more rate hikes to market earnings yield (5.1%) and above that of the broader US
come mean yields on three to 12 month T-bills are now higher than aggregate bond market (4.7%), without taking on any more duration or
those of all different tenors. And given the maturity band, the rate risk credit risk than one would have assumed over the past 20 years in this
for this exposure is minimal. portion of the credit market.

The softening of the dollar would be net positive for emerging-market The balance between central bank tightening, high inflation, and slowing
local debt, as in the months when EM currencies rallied, EM local debt’s growth could produce rate volatility. Higher yields, especially for high
return was positive 86% of the time with an average monthly gain of yield bonds, are supported by strong fundamentals and can help
2.27%. as a result of the demoralizing returns, a potential dollar bear provide a buffer against credit weakness.
allocation offers a generationally attractive yield that just may be worth
the risk.

Emerging-market currencies and local currency yields are at attractive A slowdown in the pace of Fed rate hikes should narrow rate
levels, reflecting cautious investor sentiment. As the Fed slows the pace differentials, softening dollar strength. Given the level of overvaluation,
of interest rate tightening, EM currencies may benefit. 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.

We expect a decline in long end rates of global bond curves; the front In the coming year, we expect inflation fears to evolve into growth
end should be anchored by hawkish central banks paralyzed by still too- concerns, particularly in Europe. The European Central Bank will likely
high inflation. 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

Given our expectations of sharper US disinflation and rapid Fed easing In US and European credit,, investment grade bond yields look
in 2023, we expect US 10-year yields will fall 150 basis points to end the increasingly attractive as a balance between a potentially resilient
year at 2.65%. Ten-year real yields retrace half of this year’s rise to end economy and more range-bound government bond yields.
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UniCredit Vanguard
Long-dated yields are likely to be close to their peaks. Convincing Although rising interest rates have created near-term pain for investors,
signals that inflation is easing will give central banks a green light to rein higher starting interest rates have raised our return expectations more
in some of the recent tightening, leading to a bull market revival and than twofold for US and international bonds. We now expect US bonds
curve steepening. 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.

Long term bond yields rise faster in the US than other G10 markets. The We expect US Treasury yields to decline in 2023 as we go through an
10-year Treasury nominal yield tops 4% soon, and there is a decent economic recession and in anticipation of policy rate cuts from the Fed.
chance it hits 4.25% by March. Germany and UK 10-year yields increase
only 10 to 20 basis points by mid-year.

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
INCOME
AXA Investment Managers BlackRock Investment Institute

If equities struggle with the growth environment, bonds can provide a Higher yields are a gift to investors who have long been starved for
hedge and an alternative to those investors putting a premium on income. And investors don’t have to go far up the risk spectrum to
income. receive it. We like short-term government bonds and mortgage
securities for that reason.
BNY Mellon Investment Management Comerica Wealth Management

Regionally, we prefer US equity to developed international and emerging Given this backdrop, our fixed income positioning favors quality, with
markets primarily due to the higher (albeit still low) likelihood of an investment grade corporate bonds offering a combination of relative
engineered soft landing, which would boost US equity disproportionally. valuation and income. The current volatility in bond yields leads us to
The outlook suggests staying defensive on a sector and factor basis, take interest rate risk on corporate credit over government bonds, as
preferring healthcare and consumer staples, and quality and low these securities offer quality ratings and strong balance sheets. We
volatility, respectively. We also continue to favor higher income and encourage investors not to get caught up in the pursuit of higher
value equities for their lower exposure to re-rating risk and wide yielding bonds.
Comerica Wealth Management Franklin Templeton

We remain cautious on longer-term US Treasuries in the coming months Expensive equity prices and the potential for a peak in interest rates
as persistently high inflation will likely lead to further volatility as have been driving a preference toward fixed income. We expect
investors demand a higher-term premium. We believe shorter-dated investors to search for quality and perhaps increase duration in 2023.
Treasuries, however, are closer to pricing in a peak for policy rates and Extending duration may provide compelling income opportunities, and
offer relatively attractive income opportunities. US Treasuries could be the core for building duration.
Franklin Templeton JPMorgan Asset Management

Investment-grade corporates look like an attractive place to us for We have higher conviction in cheaper stocks which have already priced
investors seeking relatively safe income. High-yield credit looks in a lot of bad news and are offering dependable dividends.
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

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
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than earnings. For investors that are tentatively looking to increase their

Investors are likely to continue to be attracted to equity investments Securitized products, such as mortgage-backed securities, auto-backed
that are defensive, have high yields, and offer inflation protection. securities and collateral debt obligations, could offer income
Infrastructure has all these traits in spades. opportunities.
Morgan Stanley Ned Davis Research

Investors should consider the higher-yielding parts of the equities For the first time in years, discounted bonds will be attractive for those
market, including consumer staples, financials, healthcare and utilities. 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 Nuveen
We believe inflation is moderating, which should provide some tailwinds We favor higher quality areas of the fixed-income market as well as
for stocks in 2023. In particular, we favor dividend-growers, an area diversified and flexible core plus mandates that can identify select
where relatively higher income can help offset price return volatility. 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 State Street

In the US, unlike previous cycles, we do not expect a rapid transition Dividend strategies can serve as a bridge to move portfolios smoothly
from Fed hikes to rate cuts and the ensuing market support. But even from a defensive stance to a more hopeful environment.
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
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.
VALUATIONS

2023 will be a two-speed year, with plenty of risks to watch out for. Given decelerating global growth and a profit recession in the first half
Bonds are back, market valuations are more attractive, and a Fed pivot of 2023, investors should remain defensive for now with gold and
in the first part of the year should trigger interesting entry points. 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.

Investors should be less confident about capital growth strategies as Even after the significant de-rating already seen, stock markets are still
we enter 2023. Bond returns should improve relative to volatility and vulnerable to the expected earnings recession.
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 Barclays

Outside of the US, markets have seen significant declines in price- We recommend bonds over stocks; equities are likely to bottom out only
earnings multiples. European markets, for example, would be well in the first half next year. The Fed funds rate is headed over 4.5%, so
placed to rally should there be positive developments in Ukraine. Asia cash is a low-risk alternative that should drag on financial market
will benefit from a post “zero-Covid” recovery in China. Long term, valuations.
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however, the US valuation premium is not likely to be challenged given

the dominance of US technology, a greater level of energy security and

Equity valuations don’t yet reflect the damage ahead, in our view. We will We see private markets as a core holding for institutional investors. The
turn positive on equities when we think the damage is priced or our view asset class isn’t immune to macro volatility and we are broadly
of market risk sentiment changes. Yet we won’t see this as a prelude to underweight as we think valuations could fall, suggesting better
another decade-long bull market in stocks and bonds. 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 Brandywine Global Investment Management

We expect new lows for equities in 2023. The 2022 correction has been We are increasingly confident about the destination of bond markets in
mostly valuation-driven, and we expect 2023 to be all about earnings, 2023, and that is toward a disinflationary environment. We are less
supporting higher realized volatility. 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.

When we look around the world, we find areas where negative US equities remain our biggest country underweight. We think there is
sentiment clearly is excessive and is more than reflected in equity more bad news to come, and market expectations and valuations are
valuations. These include China, Europe, and Japan. We are overweight still too optimistic. It is clear to everyone, except the central bankers,
and expect the outcome to be better than what is reflected in market that the Fed is on course for another major policy error. They may
estimates and valuations. 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
monetary policy.

We expect a rebound for corporate bonds in 2023. Again, there will be In equity markets, while the drop in valuations appear broadly consistent
sectors that need to be avoided, and specific credits that might be with a recessionary backdrop, there are wide disparities between
impaired. However, broadly speaking, today offers a very attractive regions - even more so on earnings. The eyes of global investors are
staring point, i.e. the “bond math” works for the investor. focused on Western inflation and growth dynamics. Looking towards
the East should prove salutary and offer most welcomed diversification.
Carmignac Carmignac
Unlike the bond market, equity prices do not incorporate the scenario of Corporate credit offers interesting opportunities, because on the risk
a severe recession, so investors need to be cautious. Japanese equities side, the expected rise in default rates is already largely incorporated in
could benefit from the renewed competitiveness of the economy, current prices. And on the reward side, embedded yields are at levels
boosted by the fall of the yen against the dollar. China will be one of the consistent with the long-term outlook for equities.

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.

We expect that as 2023 progresses, opportunities to increase portfolio In our view, 2023 will potentially be a great vintage for alternative
risk will evolve. Once interest rates peak, we will likely shift toward non- investments. Higher interest rates have caused a repricing of private
cyclical growth equities. These have already repriced lower, and we assets amid much higher borrowing costs. As such, specialist managers
expect them to begin performing once more before cyclicals. will be able to deploy capital into areas of distress and illiquidity.
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We will see greater dispersion in terms of valuation in 2023, with longer We expect a retest of the October lows (around 3,500) in the S&P 500
duration equity – companies with growth expectations farther out in the Index, before investors price in a policy response and begin discounting
future – suffering more. Investors will have to be more careful about recovery in late 2023 and early 2024. This scenario should experience
what they are willing to pay for future earnings, and demands for flat profits in 2023 and expectations of 5% earnings gains in 2024, and
profitability will come sooner. All of this will mean that companies that we would view the S&P 500 as fairly valued within the range of
aren’t able to deliver earnings are more likely to see the market take 4,100-4,200 within the next 12 months.
down their valuation.

Given this backdrop, our fixed income positioning favors quality, with As a result of the 2022 selloff, fixed income asset classes may now
investment grade corporate bonds offering a combination of relative offer some of the most attractive valuations we’ve seen in decades. The
valuation and income. The current volatility in bond yields leads us to Fed has been very vocal about its goal of bringing inflation under
take interest rate risk on corporate credit over government bonds, as control. If it meets its objective, which appears likely, interest rates
these securities offer quality ratings and strong balance sheets. We should stabilize, which could support a number of segments in the fixed
encourage investors not to get caught up in the pursuit of higher income universe.
yielding bonds.

As of November 10, 2022, the yield-to-worst on the Bloomberg US We expect the environment for real estate to become more challenging
Corporate High Yield Index is 9.1%. This level has been reached only in 2023, as the asset class faces headwinds from both higher interest
three times in the past decade. The price of bonds in the index is rates and weaker economic growth. We favor listed over direct real
averaging a market value of $85.70. This price isn’t too far off from estate due to more favorable valuation and continue to prefer property
where things ended up in the 2020 downturn. Effectively, investors are sectors with strong secular demand drivers such as logistics real estate.
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.
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
DWS Fidelity
The yield advantage of real estate investments over 10-year government The time will come to allocate back into equities too. But for now, the
bonds has shrunk significantly in 2022; real estate valuations have come deteriorating environment is not reflected in earnings forecasts or
under pressure. This trend is likely to reverse next year. valuations, implying there could be further downside to come. We
expect volatility to remain high, and sentiment is low enough that sharp

Were the US to head into recession next year, credit defaults would rise Expensive equity prices and the potential for a peak in interest rates
significantly. So far, the market is yet to reflect these risks, notably in have been driving a preference toward fixed income. We expect
high yield credit. Prudent credit selection within high yield is therefore investors to search for quality and perhaps increase duration in 2023.
essential. Extending duration may provide compelling income opportunities, and
US Treasuries could be the core for building duration.

We continue to favor euro investment-grade credit, which is cheaper We stay defensive on high yield, as defaults are starting to pick up and
from a historical perspective than other credit segments (especially spreads seem to be mispricing the developing recession pressures.
global high yield and US credit).
Generali Investments Hirtle Callaghan

Equity multiples dropped in 2022 but appear too high still relative to real In the case of a soft landing, the picture is brighter for equities if
bond yields. Earnings consensus for 2023 (single digit positive) also investors can look through this next year’s earnings. Valuations have
appears too optimistic. Our sector/style preference is mixed, but come down significantly, pricing in much of the bad news for this
cyclicals look rich at the turn of the year, while the 2022 coming year. We are positive on the outlook for corporate growth
outperformance of value will run out of steam along with bond yields. looking a couple of years out if the Fed can achieve the soft landing it is
Over 12 months, thanks to bottoming earnings, the end of central bank hoping for.
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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.

Attractive valuations, a peaking US dollar and China policy support The convergence between the US and international markets should
creates opportunity for EMs in 2023. Importantly, dispersion between continue next year, both on a dollar and local currency basis. The S&P
individual markets in Asia has widened materially, and stock level 500 risk-reward relative to other regions remains unattractive.
dispersion is even greater - reaching a point not seen since the global Continental European equities have a likely recession to negotiate and
financial crisis of 2008. This offers diversification benefits along with geopolitical tail risks, but the euro zone has never been this attractively
opportunity for alpha. priced versus the US. Japan should be relatively resilient due to solid

Both stocks and bonds have pre-empted the macro troubles set to The broad-based sell-off in equity markets has left some stocks with
unfold in 2023 and look increasingly attractive, and we are more excited strong earnings potential trading at very low valuations; we think there
about bonds than we have been in over a decade. are opportunities in climate-related stocks and the emerging markets.

We have higher conviction in cheaper stocks which have already priced Looking forward, it is clear that the income on offer from bonds is now
in a lot of bad news and are offering dependable dividends. 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

Our 2023 base case of positive returns for developed market equities While we are not calling the bottom for equity markets, we do think that
rests on a key view: a moderate recession has already largely been the risk vs. reward for equities in 2023 has improved, given the declines
priced into many stocks. 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.

While falling earnings forecasts could lead stocks lower, if the Even though we expect a challenging macroeconomic environment in
magnitude of the decline in earnings is moderate – as we expect – then 2023 and downward corporate earnings revisions, we think income
it would likely only lead to limited further downside for reasonably stocks could have a good year with dividends proving more resilient
valued stocks, relative to the declines already seen in 2022. than earnings. For investors that are tentatively looking to increase their

Bond yields rose considerably in 2022, offering attractive valuations and The considerable rise in bond yields, to levels not seen in almost 15
strong protection levels for investors in investment grade, high yield years, offers attractive valuations and strong protection levels.
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.
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We retain a cautious outlook for high yield and emerging markets debt, European equities could offer a modest upside, with a forecasted 6.3%
with a mixed picture for underlying fundamentals alongside varied total return over 2023 as lower inflation nudges stock valuations higher.
region-specific impacts from the global macroeconomic environment,
although we anticipate increased allocations at what are increasingly

Valuations are clearly cheap, and cyclical winds are shifting in favor of Raging inflation could have a damaging impact on the financial condition
emerging markets as global inflation eases more quickly than expected, of many leveraged corporations in the leveraged asset class. Bond and
the Fed stops hiking rates and the dollar declines. The MSCI EM, an loan prices already reflect much of the stress that could have a material
index of mid and large-cap companies in 24 emerging markets, could impact on credit metrics. Investors should be mindful of the inevitable
see 12% price returns in 2023. EM debt could benefit from a interest rate pivot from central banks.
combination of trends. Fixed-income strategists forecast a 14.1% total
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

Private markets won’t be impervious to the ongoing slowdown. Exits are In equities, risks surrounding fundamentals are tilted to the downside
more difficult in volatile public markets, and while private company given the extent of cumulative central bank tightening. Pockets of
valuations tend not to fall as far as public market valuations, we do think economic durability should limit a US earnings slowdown, while
they are likely to decline. Such a challenging environment is likely to monetary policy offers a bit more support elsewhere. Keeping us equal-
result in performance dispersion that tends to favor higher quality weight is the potential for sentiment upside. From beaten down levels,
companies, especially where management has well-defined growth sentiment has runway to improve — particularly in Europe where the
plans as opposed to relying on leverage and multiple expansion. valuation discount is steep.

We are equal-weight inflation-linked bonds on the basis that central We see upside to commodities given under-investment creating
banks have the tools and perceived willingness to contain inflation, but supply/demand imbalances, as well as increased demand from a China
that this is mostly reflected in valuations and the path back toward reopening and ongoing Russia disruption. Natural resources companies
target levels may prove difficult. show much improved fundamentals to help better weather economic

We are equal-weight both global real estate and listed infrastructure. Geographically, we prefer US stocks (especially large caps) relative to
Global real estate valuations make for a compelling long-term other markets, as they offer better opportunities for both defensive
investment opportunity, but interest rate volatility keeps us at a strategic positioning and growth. Across market sectors, we like healthcare as a
weighting for now. While we like listed infrastructure as a risk asset that relatively stable area and see opportunities in REITs, which offer a
can also provide downside protection, we see better risk-reward combination of solid fundamentals and attractive valuations. We also
elsewhere. think the materials sector should benefit from easing inflation and
Nuveen Pictet Asset Management

We favor higher quality areas of the fixed-income market as well as We see the return to global equities limited to some 5% for the coming
diversified and flexible core plus mandates that can identify select year, barely above the 3% we forecast for global government bonds. US
higher-income investments. We’re also quite favorable toward preferred equities are set to show the best performance. This is thanks to
securities: The issuer base is in great fundamental shape and the sector relatively attractive valuations, resilient domestic growth and the fact
is attractively valued. that the Fed is set to be the first of its peers to reach the end of its
hiking cycle.
Robeco
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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 Schroders
Emerging-market equities typically outperform once a dollar bear Recession may not necessarily be bad for all markets since financial
market enters the scene. Emerging markets are attractively valued markets tend to be forward-looking and are likely to have already priced
versus their developed counterparts. In addition, the downturn in the in much of the negative impact.
earnings cycle in emerging markets is already more mature than
developed market equities.

Asia is at the end of the earnings downgrade cycle, making cheap Asian Non-US equities now trade at 12.17 times next year’s earnings, 20%
assets look attractive. below their historical median average of 14.94. The same is true under a

While risk is still likely to be elevated in the near term, if a policy pivot US equities remain expensive on a relative basis. However, the US
turns market pessimism to optimism and risk aversion declines, our view economy appears to be on a stronger footing than the rest of the world,
is that segments with decent fundamentals and attractive valuations and its less cyclical nature could provide support as global growth
may enter a repair phase more quickly than expensive areas. weakens.
possibilities.

Cheaper valuations reflect the current challenges from high inflation, Valuations and currencies are attractive in many emerging markets.
recession risks, and an energy crisis in Europe. An easing of these Central bank tightening may have peaked. The path in 2023 is likely to
headwinds and continued fiscal support could provide upside over the remain uneven, but an easing of China’s zero-Covid policies could be a
course of 2023. Valuations are compelling, but high energy costs and 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.

The equity market’s reset is a positive for longer-term returns. However, Within equities, we retain a US bias. Overseas markets remain cheap on
the near-term risk/reward remains unfavorable given elevated recession a relative basis, but valuation is a condition not a catalyst. Given the
risk, uncompelling valuations, and downside earnings risk.Our shorter- weak global economic backdrop we expect next year, the US economy
term, tactical outlook leads us to remain defensive heading into 2023. should remain a relative outperformer, and while the upward momentum
Truist Wealth UBS

After more than a decade of underperformance, value’s relative price The negative payoff from getting our disinflation call wrong is large. The
trends have improved. We expect this to continue. Even with this year’s sweetest spot for market valuations (high), volatility (low) and bond
decline, growth valuations are still expensive. For example, technology equity correlations (negative) has been when core inflation was around
shares are trading at a 25% premium to the overall market. 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

Financials and energy are our preferred sectors. This is because we 2023 is set to inherit non-trivial economic and market risks and we
believe cyclically-oriented positions should perform if what appears to suggest entering the year with a defensive allocation, preferring fixed
be overstated pessimism on global growth fades in the face of resilient income to equities and developed to emerging market exposure. Bonds
economic data. Activity surprising to the upside and a higher-for-longer offer attractive carry and superior risk-adjusted return prospects, in our
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rate outlook should benefit value stocks relative to growth, in our view – view, while equities will face weak profitability and initially little tailwind
particularly as profit estimates for inexpensive companies are holding from valuations. We like investment-grade and high-yield credit in
up well relative to their pricier peers. Europe and retain a cautious view on duration.
UniCredit Vanguard
Following a volatile sideways movement early in the year, equities have In credit, valuations are fair, but the growing likelihood of recession and
potential to rise by about 10% in 2023, primarily supported by valuation declining profit margins skew the risks toward higher spreads. Although
expansion. Earnings growth should be flat and is unlikely to accelerate credit exposure can add volatility, its higher expected return than US
before 2024. Our 2023 year-end index targets are Euro Stoxx 50 at Treasuries and low correlation with equities validate its inclusion in
4,200, the DAX at 15,500 and the S&P 500 at 4,300. 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 Wells Fargo Investment Institute

Within the US market, value stocks are fairly valued relative to growth, We expect earnings to contract in 2023 as the recession leads to
and small-capitalization stocks are attractive despite our expectations declining revenues and profit margins. Valuations should rebound in
for weaker near-term growth. 2023 to lift equity markets by year-end as early cycle dynamics begin to
take hold.
WAR

Long-term ESG themes will continue to benefit from the aftermath of Outside of the US, markets have seen significant declines in price-
the Covid-19 crisis and the Ukraine war. Investors should get exposure earnings multiples. European markets, for example, would be well
to energy transition and food security, as well as re-shoring trends placed to rally should there be positive developments in Ukraine. Asia
provoked by geopolitics. Social themes will be back in focus, as the will benefit from a post “zero-Covid” recovery in China. Long term,
deteriorating labor market and inflation demand more attention to social however, the US valuation premium is not likely to be challenged given
factors. the dominance of US technology, a greater level of energy security and
Bank of America BCA Research

Higher for longer oil prices. Russian sanctions, low oil inventories, Inflation will come down rapidly as pandemic and war-induced
China’s reopening, and an OPEC that’s willing to cut production in case dislocations fade, the mix of spending between goods and services
demand weakens should keep energy prices high. Brent Crude is normalizes, and the aggregate demand curve slides down the steep
expected to average $100 per barrel over the course of 2023 and spike side of the aggregate supply curve in response to the lagged effects of
to $110 per barrel in the second half of the year. tighter financial conditions.
Commonwealth Financial Network Deutsche Bank

Going forward, it’s reasonable to believe the US dollar will remain strong. The recession we have now been anticipating for nine months draws
But an equally compelling argument could be made that its current nearer. A downturn may already be under way in Germany and the euro
strength will not be sustained throughout 2023. If the Fed cools down area overall thanks to the energy shock stemming from the Russia-
inflation and curbs interest rate increases, investors could see the dollar Ukraine war. Our expectation for a recession in the US by mid-2023 has
stabilize—or possibly weaken—against other currencies. Several wild strengthened on the back of developments since early last spring.
did in 2022.
Deutsche Bank NatWest

The pace of recovery in 2024 and beyond is likely to be moderate, not a We are not optimistic for a swift end to the war in Ukraine and a return
strong bounce as has been seen in the past. Factors that are likely to of Russian energy to global markets anytime soon. OPEC is setting
weigh on global growth for some time to come include uncertainties itself up to be in price-defense mode throughout 2023, and US
relating to both the Russia-Ukraine conflict—including a lingering production may continue to underwhelm as investment adjusts to fears
energy-related competitiveness shock in Europe—and the growing US� of weaker demand. In turn, the slowdown in global growth may not bring
China strategic competition. with it a speedy drop in global energy prices.
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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
Northern Trust Societe Generale

We see upside to commodities given under-investment creating A premature end to Russia’s war on Ukraine is a possibility. European
supply/demand imbalances, as well as increased demand from a China assets would benefit most, and although we are neutral on European
reopening and ongoing Russia disruption. Natural resources companies equities (cheap cyclicals would soar in that scenario), we clearly give
show much improved fundamentals to help better weather economic ourselves some protection through our increased euro exposure.
Truist Wealth UBS

Our base case calls for a US recession in 2023, even though economic If inflation is meaningfully higher (100 basis points) than our forecast,
growth in the US is expected to remain stronger relative to global peers. global growth would be 50-70 basis points lower and policy rates 100
Europe is likely to see the deepest recession, with countries closer to basis points higher (160 basis points in DM). A global housing downturn
Ukraine and Russia being hit especially hard. 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.

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
peso.
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.
LIQUIDITY
Amundi Asset Management Citi Global Wealth Investments

“Bonds are back” with a focus on high-quality credit, while paying In our view, 2023 will potentially be a great vintage for alternative
attention to FX in a world of diverging policies, as well as to liquidity investments. Higher interest rates have caused a repricing of private
risks and corporate leverage. assets amid much higher borrowing costs. As such, specialist managers
will be able to deploy capital into areas of distress and illiquidity.
Fidelity Fidelity
Rates should eventually plateau, but if inflation remains sticky above 2%, If the Fed continues to raise rates, an even stronger dollar could
they are unlikely to reduce quickly even if banks take other measures to accelerate the onset of recession elsewhere. Conversely, a marked
maintain liquidity and manage increasingly challenging debt piles. change in the dollar’s direction, potentially as its relative strength and
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economies.
Fidelity Neuberger Berman

We have repeatedly argued that the financial system cannot take Despite the pace of policy adjustment and attendant market rate moves,
positive real rates for any material length of time (due to high levels of outside the UK central banks have so far not had to intervene to
debt) before financial stability becomes an issue. Given liquidity and maintain market liquidity—but an emergent policy conflict remains a tail
assets are already under considerable pressure, the system could start risk for bond markets in 2023.
Robeco Schroders
While the dollar bull market could prove to be more persistent as the Supported by liquidity and growth, Hong Kong and mainland Chinese
Fed shows reluctance to pivot and as potential liquidity events trigger equities stand a good chance of outperforming its peers, especially
safe-haven flows towards the US, the dollar bull run will likely peak in emerging markets.
2023. This will be on the back of declining rate differentials between the
the world.
T. Rowe Price
T. Rowe Price Truist Wealth

Investors could face a third bear market stage: a liquidity shock, in We anticipate a continuation of this year’s elevated rate volatility and
which markets decline across the board as leveraged positions are strained liquidity conditions in 2023.
unwound. While painful, such shocks also can create major buying
opportunities.

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.
RESHORING
Bank of America Fidelity

A strong labor market, ESG, US/China decoupling, and We expect Chinese policymakers to continue to focus on reviving the
deglobalization/reshoring are expected to keep certain areas of capex economy, investing in longer-term areas such as green technologies
strong, even in the event of a recession. and infrastructure. Any loosening of Covid restrictions will cause
Fidelity Macquarie Asset Management

Inflation is likely to moderate, but we expect it will do so gradually. Macquarie Asset Management remains cautious toward equities due to
Indeed, structural trends such as decarbonisation, deglobalization, and earnings risks and anticipates a decline in equity markets as the
the process of dealing with high debt levels are likely to keep up the developed world endures recessionary conditions. The asset manager
inflationary pressure over the coming years. 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 T. Rowe Price

US large-caps have been remarkably good performers in recent times, Geopolitical tensions, decarbonization, and global supply chain
while as globalisation slows and onshoring becomes a major theme we restructuring are likely to catalyze capital spending in a variety of
think construction and engineering firms, railroads, and consumer industries and countries. This should drive demand for raw materials
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discretionary-related companies will benefit. and infrastructure.
ENERGY

In Europe, the energy shock, compounded by inflationary pressures Long-term ESG themes will continue to benefit from the aftermath of
related to the aftermath of the Covid crisis, remains the main dampener the Covid-19 crisis and the Ukraine war. Investors should get exposure
on growth. The ensuing cost-of-living crisis will drag Europe into to energy transition and food security, as well as re-shoring trends
recession this winter before a slow recovery. But that doesn’t mean provoked by geopolitics. Social themes will be back in focus, as the
inflation will abate. deteriorating labor market and inflation demand more attention to social
factors.

Higher for longer oil prices. Russian sanctions, low oil inventories, Inflation is unlikely to fall quickly in 2023, meaning that monetary policy
China’s reopening, and an OPEC that’s willing to cut production in case will have to be restrictive, even with economies in recession. Europe’s
demand weakens should keep energy prices high. Brent Crude is energy crunch and US sanctions on China are sources of particular
expected to average $100 per barrel over the course of 2023 and spike concern.
to $110 per barrel in the second half of the year.

Despite dire predictions, energy shortages in Europe this winter appear Relative to subdued expectations, growth will surprise to the upside in
to have been averted, due in large part to unusually mild weather and 2023, as the US averts a recession, Europe experiences a robust
efforts to curb consumption. But the crisis is not over. Unless energy recovery following the energy crisis, and China dismantles its zero-
prices moderate significantly, gaps in industrial production and GDP Covid policies. Growth will weaken towards the end of 2023, with a mild
could persist, damaging competitiveness. recession probable in 2024

In equities, we look to lean into sectoral opportunities from structural We expect the oil market to loosen between the second and fourth
transitions – such as healthcare amid aging populations – as a way to quarters of 2023 and have cut our price forecasts.
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.

Carmignac Citi
In Europe, high energy costs are expected to affect corporate margins Short copper has been our recession trade in commodities. While the
and household purchasing power, and thus trigger a recession over this Chinese reopening is a risk to the trade, our metals strategist thinks that
quarter and next. The recession should be mild as high gas storages copper is unlikely to benefit enough, given that Chinese housing may
should prevent energy shortages. However, economic recovery from the stop falling, but will not rebound much, and given the US recession. We
second quarter onward is expected to be lackluster, with businesses therefore stay negative. We stay neutral in energy and gold.

We need to get through a deeper recession in Europe as it struggles In 2023, we look for a resumption of US dollar strength and a renewed
through a winter of energy scarcity and inflation. We also need to see a bid for oil as geopolitical tensions remain elevated. Commodities
sustained economic recovery in China, whose prior regulatory policies including copper and gold are unlikely to gain traction until the Fed’s
and current Covid policies curtail domestic growth. tightening campaign abates.
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Going forward, it’s reasonable to believe the US dollar will remain strong. In early 2023, demand for cyclical commodities may be soft, while
But an equally compelling argument could be made that its current elevated pressure in energy markets should help speed up Europe’s
strength will not be sustained throughout 2023. If the Fed cools down energy transition. Pullbacks in carbon prices could offer opportunities in
inflation and curbs interest rate increases, investors could see the dollar the medium term, and we think the backdrop for gold should improve as
stabilize—or possibly weaken—against other currencies. Several wild policy normalization nears its end.
did in 2022.

The recession we have now been anticipating for nine months draws Supply constraints will keep oil prices elevated in the neighborhood of
nearer. A downturn may already be under way in Germany and the euro $100 per barrel until demand softens with the US downturn; then see
area overall thanks to the energy shock stemming from the Russia- these prices declining $20 by year end.
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 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
Deutsche Bank DWS

The pace of recovery in 2024 and beyond is likely to be moderate, not a We do not expect a pronounced upswing across the board in equities.
strong bounce as has been seen in the past. Factors that are likely to The selection of the right sectors and, within these, the most promising
weigh on global growth for some time to come include uncertainties individual stocks is decisive. Particularly promising are selected stocks
relating to both the Russia-Ukraine conflict—including a lingering from the healthcare sector as well as companies from the industry
energy-related competitiveness shock in Europe—and the growing US� sector whose business models are based on advancing energy
China strategic competition. efficiency.

The euro area and the UK are probably in recession, mainly because of Despite more pessimistic expectations for balances over the next few
the real income hit from surging energy bills. But we expect only a mild months, we find the underlying trends in the oil market supportive and
downturn as Europe has already managed to cut Russian gas imports expect global Brent benchmark price to average $90 per barrel in 2023
without crushing activity and is likely to benefit from the same post- and $98 in 2024.

Despite remaining above central bank targets, inflation should start to Energy security will continue to be a dominant theme for the year
moderate as the economy slows, the labor market weakens, supply ahead. Macquarie Asset Management anticipates that although Europe
chain pressures continue to ease and Europe manages to diversify its may have enough resources to see it through this winter through
energy supply. increased liquified natural gas imports and reliance on other fuel
sources, the biggest challenge will occur in the coming year.

Oil will outperform gold and copper, with Brent crude, the global oil 2023 is forecast to see significant falls in inflation as the energy shock
benchmark, ending 2023 at $110. 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 Nuveen
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Ned Davis Research Nuveen

It’s highly likely that the European economy fell into recession in the Perhaps our highest-conviction collective view is our preference for
fourth quarter of 2022 due to the energy shock brought by Russia’s war infrastructure investments, particularly public infrastructure. Regulated
and tighter monetary policy. We forecast a 0% to 0.5% growth rate for utility revenue tends to be relatively decoupled from the economy and
the euro zone in 2023, as the recession continues into next year. We can experience growth from rising capital costs and policies related to
expect the recession to be mild. The outlook, however, is uncertain and energy transition and the Inflation Reduction Act.

Cheaper valuations reflect the current challenges from high inflation, Oil and gas prices remain sticky given geopolitics, supply decisions, and
recession risks, and an energy crisis in Europe. An easing of these lack of investment. Base metals decline on the back of demand
headwinds and continued fiscal support could provide upside over the destruction. Gold likely trades lower on further real rate increases
course of 2023. Valuations are compelling, but high energy costs and before rallying later in 2023.

China’s reopening should fuel a pick-up in domestic oil demand, Securing sufficient access to energy is not a problem that will be solved
offsetting some of the downward pressure on inflation from goods at the end of this winter – and may grow more intense as Chinese
prices. demand increases if mobility restrictions are removed.

In currencies, we believe we have moved from a strong, trending US Greeniums are set to move sideways or richen moderately as strong
dollar to more of a rangebound trade in USD. Our catalysts for a broad demand for ESG assets outpaces new issuance. Policy initiatives and
turn in the dollar are for the Fed to stop hiking interest rates, China’s the transforming energy landscape will support interest in the asset
zero-Covid-19 policy to end, and energy pressures in Europe stemming class.
peso.
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.

The absence of Russia from the world’s oil and gas markets will We expect commodities to perform well in 2023, especially energy-
continue to be felt in 2023 and beyond and make the risk of commodity- related commodities and equities and high-quality master limited
driven stagflation quite high. 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.
HEDGING
AXA Investment Managers BCA Research

If equities struggle with the growth environment, bonds can provide a Gold will remain a desirable hedge against a variety of geopolitical risks,
hedge and an alternative to those investors putting a premium on as well as the risk of a second wave of inflation. We are neutral on gold
income. going into 2023.
BlackRock Investment Institute Goldman Sachs

We are underweight nominal long-term government bonds in each We see potential for bonds to be less positively correlated with equities
scenario in this new regime. This is our strongest conviction in any later in 2023 and provide more diversification benefits. But until central
scenario. We think long-term government bonds won’t play their banks stop hiking and inflation normalizes further, they are unlikely to be
traditional role as portfolio diversifiers due to persistent inflation. And a reliable buffer for risky assets.
we see investors demanding higher compensation for holding them as
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As stock and bond correlations turned positive this year, limiting the Strategies like hedge funds – particularly global macro or CTAs –
investment universe to traditional asset classes isn’t an option anymore. continue to look like attractive diversifiers for asset allocators.
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.

The potential for bonds to meaningfully support a portfolio in the most The considerable rise in bond yields, to levels not seen in almost 15
extreme negative scenarios – such as a much deeper recession than we years, offers attractive valuations and strong protection levels.
envisage, or in the event of geopolitical tensions – is perhaps most
important for multi-asset investors.
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 Pimco

Among liquid alternatives, we think global macro and other trading- We see ample evidence that both the near- and long-term case for fixed
oriented hedged strategies can continue to find opportunity amid income is strong today. Higher starting yields have increased long-term
volatility. We anticipate increasing opportunities to provide niche capital return potential, while higher-quality bonds should resume their role as a
solutions at attractive or even stressed yields as debt structures are reliable diversifier against equities if a recession materializes.
reworked. And on the illiquid side, we think private equity secondaries
has become a buyers’ market. Economic strains could also open up

Schroders expects a reversal in the performance of global currencies in Systemic risks are a common feature after a round of policy tightening
2023, where the US dollar may weaken. On the other hand, the of this kind. Holding gold and the Swiss franc can help stabilize portfolio
Japanese yen may regain its strength, providing a hedge against the volatility, in our view.
impact of a semiconductor downcycle on other Asian economies and
currencies.

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.
DISINFLATION

We see the first quarter of 2023 as a turning point for US and euro zone Within fixed income, we prefer developed market sovereigns on the
government bond markets due to peaks in both central-bank policy back of the nascent disinflationary trend, real policy rates nearing
rates and net supply net of QE/QT. In terms of fundamentals, the global positive territory, and several central banks downshifting the pace of
growth downturn and disinflation point to lower yields throughout 2023. rate hikes.

We are increasingly confident about the destination of bond markets in In addition to the favorable technical developments for bonds in 2023,
2023, and that is toward a disinflationary environment. We are less two potential disinflationary outcomes for the global economy also
certain about the path and timing of the journey. The bond math now support fixed income, particularly if an investor’s time horizon is the
works in favor of the asset class, meaning that the coupon return will entire year. We expect a job-killing recession is necessary to break
become a more influential source of the total return for bonds. inflation and get it close to central banks’ 2% target. That means there
will be meaningful weakness in the labor market globally. Under this
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Carmignac Deutsche Bank

The disinflationary trend over the first part of the year should turn in We see the risks still weighted toward more severe recessions being
favor of visible growth equities. needed to get the disinflation job done successfully, and we assume the
Fed and ECB will be up to the task if needed.
Robeco Robeco
We think that the belief in central bankers’ ability to prevent cyclical When unemployment surges towards 5% and disinflation accelerates on
downturn is flawed. Instead, we expect a hard landing. Risks are tilted to the back of a NBER recession in the second half of 2023, the Fed (and
the downside for the 2023 consensus of US annual real GDP growth of other central banks) will start cutting. Therefore, we think the Fed policy
0.8%. As recessions tend to be highly disinflationary, we believe this will rate will be below the 4.6% December 2023 level implied in the Fed
take the sting out of inflation. 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,
UBS UBS
Given our expectations of sharper US disinflation and rapid Fed easing The strongest EM disinflation in 20 years should drive 10% to 12%
in 2023, we expect US 10-year yields will fall 150 basis points to end the returns in EM duration. EM equities should post similar returns (but later,
year at 2.65%. Ten-year real yields retrace half of this year’s rise to end and with lower Sharpe ratios) as a peaking Fed, China reopening and
2023 at 65bps. We expect 10-year Bunds and Gilts to underperform troughing semis cycle drive strong second-half returns. Currencies are
Treasuries as “single mandate” ECB and BOE stay on hold for longer. the weakest link. We see EM Asia weakening further in the first half
JGBs do little as the BOJ persists with YCC. Australia and Korea amid a weak trade backdrop, low carry and a need to rebuild depleted
duration are our favored APAC picks. FX reserves.
UBS UBS
The negative payoff from getting our disinflation call wrong is large. The We expect inflation to ease and therefore see the bond-equity
sweetest spot for market valuations (high), volatility (low) and bond correlation normalizing, but equity returns themselves should be
equity correlations (negative) has been when core inflation was around modest. We calculate equity-bond allocations based on risk parity,
the third decile of its 50-year distribution, an average rate of 1.8% year- active risk parity and simple mean variance approaches. The
on-year. That is roughly where we expect it to land in 2024. If we’re recommended equity-bond portfolio is much closer to 35-65 than
wrong, and it lands, say, at the sixth decile (about 2.8%), the valuation 60-40.
COVID

Long-term ESG themes will continue to benefit from the aftermath of Outside of the US, markets have seen significant declines in price-
the Covid-19 crisis and the Ukraine war. Investors should get exposure earnings multiples. European markets, for example, would be well
to energy transition and food security, as well as re-shoring trends placed to rally should there be positive developments in Ukraine. Asia
provoked by geopolitics. Social themes will be back in focus, as the will benefit from a post “zero-Covid” recovery in China. Long term,
deteriorating labor market and inflation demand more attention to social however, the US valuation premium is not likely to be challenged given
factors. the dominance of US technology, a greater level of energy security and

China’s gradual reopening is underway, with most curbs expected to be After a volatile start to 2023, emerging markets should produce strong
removed by the second half of the year. It could be bumpy until later in returns. Once inflation and rates peak in the US and China reopens, the
2023. outlook for emerging markets should turn more favorable. China
equities will likely strengthen due to a reversal in both zero-Covid and
property tightening.
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Relative to subdued expectations, growth will surprise to the upside in Inflation will come down rapidly as pandemic and war-induced
2023, as the US averts a recession, Europe experiences a robust dislocations fade, the mix of spending between goods and services
recovery following the energy crisis, and China dismantles its zero- normalizes, and the aggregate demand curve slides down the steep
Covid policies. Growth will weaken towards the end of 2023, with a mild side of the aggregate supply curve in response to the lagged effects of
recession probable in 2024 tighter financial conditions.
BNY Mellon Investment Management Citi Global Wealth Investments

China’s exit from Covid proves disorderly. Its stop-go approach to We need to get through a deeper recession in Europe as it struggles
lockdowns damages confidence, dents policy efficacy, and results in through a winter of energy scarcity and inflation. We also need to see a
economic stalling. sustained economic recovery in China, whose prior regulatory policies
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

We forecast a drop in global growth from 3.2% in 2022 to 2.1% in 2023. China is likely to grow slowly in the first half as a reopening initially
We expect barely positive US growth (0.3%), with even a mild triggers an increase in Covid cases that keeps caution high, but should
contraction over the central quarters of 2023. We expect core CPI accelerate sharply in the second half on a reopening boost. Our longer-
inflation to end 2023 slightly above 3% year-on-year. Europe is likely run China view remains cautious because of the long slide in the
entering recession at the turn of the year, while the Covid policy property market as well as slower potential growth (reflecting weakness
relaxation in China, along with a better credit impulse, will support a mild in both demographics and productivity).
recovery.
JPMorgan NatWest
At 2.9% in 2023, EM growth looks to remain well below its pre- We forecast a marked slowdown in global economic growth in 2023:
pandemic trend, slowing modestly from 2022. EM excluding China is 1.2% from 3.7% in 2022. Our projections are below market consensus
expected to slow to a below-trend 1.8% with wide regional divergences. and official forecasts (the latter typically do not show recessions—yet).
In China, the full-year 2023 growth forecast is 4% year-over-year, where The advanced economies are expected to endure a year of slowdown in
two quarters of below-trend growth are assumed as the economy 2023 with outright recessions in the US and UK and stagnation in the
loosens Covid restrictions. euro area – while China experiences a mild form of “economic long
covid.”
Northern Trust Pictet Asset Management

The firm expects growth to continue to be constrained globally, with We forecast global growth to slow to 1.7% in 2023, with stagnation in
some regions arguably already in recession and others on the precipice. most developed economies and outright recession in Europe. China’s
It also believes that China’s pandemic-to-endemic transition will economy, on the other hand, is likely to re-accelerate as the government
continue to materially impact the outlook for global economic demand. relaxes its zero-Covid policy. Overall, growth is likely to pick up again
following the first quarter.
Principal Asset Management T. Rowe Price

A full China reopening will not happen overnight. Yet a roadmap for an Valuations and currencies are attractive in many emerging markets.
end to China’s stringent Covid measures, coupled with additional Central bank tightening may have peaked. The path in 2023 is likely to
stimulus policies, should provide the catalyst for a strong rebound in remain uneven, but an easing of China’s zero-Covid policies could be a
Chinese economic activity and risk assets in 2023. Global commodity significant tailwind.
prices also stand to benefit from this development.

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

In currencies, we believe we have moved from a strong, trending US
108 of 115 09/01/2023, 10:00 a.m.

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
peso.
STAGFLATION
Barclays Citi
The global economy looks set to enter a stagflationary phase: as Our quant corner finds macro-economic conditions in stagflationary
Europe and the US contract, growth remains sluggish in China, but territory and is bearish risky assets. Using our economic forecasts, next
inflation fades only gradually. Bringing inflation back to target, while year could be brighter, as inflation is likely peaking and central bank
output sinks and employment rises, will test central banks’ resolve. hiking cycles more mature, setting the stage for overweights in credit
and bonds.
HSBC Asset Management Wells Fargo

Value still makes sense as rates continue to rise, although this needs to Stagflation is the biggest macro risk, in our opinion, and central bank
be balanced against a deteriorating macro outlook and lower responses would be tough to predict. Some policymakers likely would
commodity prices. The coming switch in the macro story from opt to put their economies into the deep freeze so they could squelch
stagflation toward recession should favor defensive and quality factors. inflation.

The ECB and BOE have already shown more concern for slowing The absence of Russia from the world’s oil and gas markets will
growth vs. high inflation, and seem more inclined to pivot away from continue to be felt in 2023 and beyond and make the risk of commodity-
inflation fighting in a stagflation scenario. In contrast, the Fed’s bar for driven stagflation quite high.
pivoting seems higher. Private debt has been more contained in the US
decades.
UNEMPLOYMENT

The US consumer gets some relief on prices, but also becomes less The global economy looks set to enter a stagflationary phase: as
willing to spend given the wealth effect and as labor markets worsen. Europe and the US contract, growth remains sluggish in China, but
Labor markets should finally ease in 2023 and the US unemployment inflation fades only gradually. Bringing inflation back to target, while
rate should peak at 5.5% in the first quarter of 2024, hindering output sinks and employment rises, will test central banks’ resolve.
consumer spending.

In addition to the favorable technical developments for bonds in 2023, We expect the US economy to enter a recession later this year but with
two potential disinflationary outcomes for the global economy also a much sharper and longer decline in activity than anticipated by the
support fixed income, particularly if an investor’s time horizon is the consensus. Faced with inflation, the Fed will have to create the
entire year. We expect a job-killing recession is necessary to break conditions for a real recession with an unemployment rate well above
inflation and get it close to central banks’ 2% target. That means there 5%, compared with 3.5% today, which is not currently envisaged by the
will be meaningful weakness in the labor market globally. Under this consensus
Citi Global Wealth Investments Deutsche Bank

We need to get through a recession in the US that has not started yet. We read the Fed and ECB as being absolutely committed to bringing
We believe that the Fed’s current and expected tightening will reduce inflation back to desired levels within the next several years. Although
nominal spending growth by more than half, raise US unemployment the costs in doing so may be lower than in the past, it will not be
above 5% and cause a 10% decline in corporate earnings. The Fed will possible to do so without at least moderate economic downturns in the
likely reduce the demand for labor sufficiently to slow services inflation US and Europe, and significant increases in unemployment.
109 of 115 09/01/2023, 10:00 a.m.


We think the Fed and ECB will succeed in their missions as they stick to Declines in aggregate demand and increases in unemployment will
their guns in the face of what is likely to be withering public opposition relieve upward pressure on wages and prices, enough we think to move
as unemployment mounts. The moderate cost of doing so now will be inflation gradually back to desired levels by the end of 2024.
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
2024.
DWS

The US should narrowly avoid recession as core PCE inflation slows The good news is that central banks will likely be forced to pivot and
from 5% now to 3% in late 2023 with a 0.5 percentage point rise in the signal cutting interest rates sometime next year, which should result in a
unemployment rate. To keep growth below potential amidst stronger sustained recovery of asset prices and subsequently the economy by
real income growth, we now see the Fed hiking to a peak of 5-5.25%. the end of 2023. The bad news is that in order for that pivot to happen,
We don’t expect cuts in 2023. we will need to see a combination of more economic weakness, an
Robeco Robeco
When unemployment surges towards 5% and disinflation accelerates on The pace of rate hikes will slow as employment figures start to
the back of a NBER recession in the second half of 2023, the Fed (and deteriorate. This will solidify the bull market for sovereign bonds and,
other central banks) will start cutting. Therefore, we think the Fed policy after a dismal 2022, there will be better times ahead for the 60/40
rate will be below the 4.6% December 2023 level implied in the Fed portfolio.
funds futures curve.
UBS Vanguard
The economic weakness we forecast is widespread but it is not deep. It Growth is likely to end 2023 flat or slightly negative in most major
would be enough, however, to push unemployment 100 basis points economies outside of China. Unemployment is likely to rise over the
higher in DM, and 200 basis points in the US (to 5.5%). Combined with year but nowhere near as high as during the 2008 and 2020 downturns.
inflation coming down rapidly in the coming quarters, that creates a Through job losses and slowing consumer demand, a downtrend in
much stronger central bank pivot than is priced by the market: about inflation is likely to persist through 2023.
200 basis points in DM cuts by mid-2024 (and nearly 400 basis points
in the US).
ESG
Amundi Asset Management Bank of America

Long-term ESG themes will continue to benefit from the aftermath of A strong labor market, ESG, US/China decoupling, and
the Covid-19 crisis and the Ukraine war. Investors should get exposure deglobalization/reshoring are expected to keep certain areas of capex
to energy transition and food security, as well as re-shoring trends strong, even in the event of a recession.
provoked by geopolitics. Social themes will be back in focus, as the
deteriorating labor market and inflation demand more attention to social
factors.
BNP Paribas UniCredit

Global green bond issuance will recover to 2021 levels in 2023, we Greeniums are set to move sideways or richen moderately as strong
think, thanks largely to Europe’s consistency and China’s rising demand for ESG assets outpaces new issuance. Policy initiatives and
issuance. the transforming energy landscape will support interest in the asset
class.
RISKS
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Amundi Asset Management BCA Research

2023 will be a two-speed year, with plenty of risks to watch out for. Gold will remain a desirable hedge against a variety of geopolitical risks,
Bonds are back, market valuations are more attractive, and a Fed pivot as well as the risk of a second wave of inflation. We are neutral on gold
in the first part of the year should trigger interesting entry points. going into 2023.
BNY Mellon Investment Management Citi Global Wealth Investments

Output is likely to fall in 2023, with risks to the downside. Inflation will We believe that the Fed’s rate hikes and shrinking bond portfolio have
probably fall too, but relatively slowly, remaining above target for some been stringent enough to cause an economic contraction within 2023.
time, with risks to the upside. As a result, despite recession, interest And if the Fed does not pause rate hikes until it sees the contraction, a
rates are set to rise further, though with risks to the downside. All this deeper recession may ensue.
Comerica Wealth Management Credit Suisse

Should global conditions worsen and a deeper recession, or hard With inflation likely to normalize in 2023, fixed-income assets should
landing ensues it’s conceivable that S&P 500 profits decline to the become more attractive to hold and offer renewed diversification
$200 range in 2023. In this scenario, we do not expect technical benefits in portfolios. US curve “steepeners,” long-duration US
support to hold at 3,500 for the S&P 500. Instead, we view a more government bonds (over euro zone government bonds), emerging-
typical recession-like P/E multiple of 15x to result, therefore taking the market hard currency debt, investment grade credit and crossovers
Index down to the 3,000 range. should offer interesting opportunities in 2023. Risks for this asset class

The pace of recovery in 2024 and beyond is likely to be moderate, not a We see the risks still weighted toward more severe recessions being
strong bounce as has been seen in the past. Factors that are likely to needed to get the disinflation job done successfully, and we assume the
weigh on global growth for some time to come include uncertainties Fed and ECB will be up to the task if needed.
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 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

The start of 2023 is dominated by a global – if desynchronized – In the near term, bonds could remain more of a source of risk than of
economic slowdown (cold) but still elevated inflation (hot). Our core safety: policy rates could end up going higher, and staying there longer,
scenario sees a mild euro-area recession, and an even milder US one. than investors are prepared for.
Risks are skewed to the downside: such brutal tightening of monetary
policy and financial conditions rarely leaves the economy and markets
unscathed.

Financial markets are now pricing a goldilocks outcome which we For equities, we think price to earnings ratios in developed markets have
consider very unrealistic. As such, we remain underweight global scope to fall given where bond yields are. But the big risk remains
equities, global high-yield credit and developed-market sovereigns. corporate earnings downgrades, which will probably be a driver of weak
JPMorgan NatWest
The convergence between the US and international markets should In the US we see bullish steepening risks as markets price a dovish
continue next year, both on a dollar and local currency basis. The S&P pivot in the second half. In Europe and the UK, we remain short duration
500 risk-reward relative to other regions remains unattractive. due to heavy supply, quantitative tightening, region risk and weak
Continental European equities have a likely recession to negotiate and demand themes. Bearish steepeners out to 10 years. In Japan we see a
geopolitical tail risks, but the euro zone has never been this attractively change of leadership at the BOJ creating flexibility in yield curve control.
111 of 115 09/01/2023, 10:00 a.m.


Despite the pace of policy adjustment and attendant market rate moves, Northern Trust expects 2023 to be a turbulent year as conditions pivot
outside the UK central banks have so far not had to intervene to from inflation and monetary policy fears to a weak global economy, but
maintain market liquidity—but an emergent policy conflict remains a tail the firm also expects market volatility to somewhat temper due to lower
risk for bond markets in 2023. inflation and a pause in central bank interest rate increases. A reduction
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,
Nuveen Robeco
We should continue to see pockets of strength across global equity We think that the belief in central bankers’ ability to prevent cyclical
markets on specific catalysts such as perceived dovish messaging from downturn is flawed. Instead, we expect a hard landing. Risks are tilted to
central banks or even a moderation of rate hikes, but the risks the downside for the 2023 consensus of US annual real GDP growth of
surrounding earnings, employment and contractionary manufacturing 0.8%. As recessions tend to be highly disinflationary, we believe this will
data lead us to believe we’re not yet out of the equity bear market. take the sting out of inflation.
Robeco Societe Generale

For the euro zone, the consensus of 0.4% real GDP growth in 2023 is 2023 should be a year during which the real economy finally
fairly consistent with leading indicators like decelerating broad money deteriorates into a (mild) recession, monetary conditions gradually stop
growth in the region. But we flag the risk of excess tightening by the tightening, while systemic risk grows.
ECB, especially to get imported inflation under control.

Systemic risks are a common feature after a round of policy tightening While risk is still likely to be elevated in the near term, if a policy pivot
of this kind. Holding gold and the Swiss franc can help stabilize portfolio turns market pessimism to optimism and risk aversion declines, our view
volatility, in our view. is that segments with decent fundamentals and attractive valuations
may enter a repair phase more quickly than expensive areas.
possibilities.

The global economy has passed from decades of declining interest Investors could face a third bear market stage: a liquidity shock, in
rates into a new regime marked by persistent inflationary pressures and which markets decline across the board as leveraged positions are
higher rates. Regime change clearly presents risks. But markets may unwound. While painful, such shocks also can create major buying
have overreacted to some of those risks in 2022, creating attractive 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.

Historically, earnings around recessions have averaged a drop of almost US credit spreads should widen as the year progresses and the impact
20%. We don’t necessarily believe that earnings have to fall that far of the Fed’s aggressive policy tightening begins to emerge more fully.
given how well corporations have navigated the pandemic and the fact Areas like leveraged loans, high-yield corporates, and emerging-markets
that elevated inflation raises nominal sales figures, but there remains bond will likely see meaningful underperformance as economic risks
downside risk. rise.
UBS UBS
The negative payoff from getting our disinflation call wrong is large. The If inflation is meaningfully higher (100 basis points) than our forecast,
sweetest spot for market valuations (high), volatility (low) and bond global growth would be 50-70 basis points lower and policy rates 100
equity correlations (negative) has been when core inflation was around basis points higher (160 basis points in DM). A global housing downturn
the third decile of its 50-year distribution, an average rate of 1.8% year- does more damage (110 basis points additional downside to growth).
on-year. That is roughly where we expect it to land in 2024. If we’re Rapid de-escalation of the Russia/Ukraine war would add about 0.5
112 of 115 09/01/2023, 10:00 a.m.

wrong, and it lands, say, at the sixth decile (about 2.8%), the valuation percentage points to our global growth forecast.
UniCredit UniCredit
We forecast a mild technical recession in both the US and the euro 2023 is set to inherit non-trivial economic and market risks and we
zone, followed by a below-trend recovery. The risks to growth are suggest entering the year with a defensive allocation, preferring fixed
skewed to the downside, including from negative geopolitical income to equities and developed to emerging market exposure. Bonds
developments, greater persistence in wage and price setting, and offer attractive carry and superior risk-adjusted return prospects, in our
financial stability risks. 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.

The ongoing sharp monetary tightening and upcoming recession pose Stagflation is the biggest macro risk, in our opinion, and central bank
significant downside risks. However, evidence of slowing core inflation, responses would be tough to predict. Some policymakers likely would
peaking official rates and signs of economic recovery would pave the opt to put their economies into the deep freeze so they could squelch
way for more risk taking in the second half. inflation.
Wells Fargo

Massive private debt overhang in many G10 economies could cause The absence of Russia from the world’s oil and gas markets will
earlier/faster rate cuts. Risks appear to be largest in Sweden and continue to be felt in 2023 and beyond and make the risk of commodity-
Canada, both of which have seen a huge jump in corporate and driven stagflation quite high.
household debt/GDP over the past decade
VALUTATIONS
Robeco Schroders
Equity valuations have not yet hit rock bottom. In addition, the next Schroders expects 2023 to usher in a turning point for global equities
recession could prove to be less mild than currently priced in by, for after the sharp corrections seen year-to-date this year. Valuations are
instance, high yield option-adjusted spreads. now at more attractive levels where investors may look to quality
INTEREST RATES
Barclays Barclays
This year’s aggressive rate hikes should hit the world economy mainly in We recommend bonds over stocks; equities are likely to bottom out only
2023. We expect advanced economies to slip into recession, and we in the first half next year. The Fed funds rate is headed over 4.5%, so
forecast global growth at just 1.7%, one of the weakest years for the cash is a low-risk alternative that should drag on financial market
world economy in 40 years. We recommend bonds over stocks, as well valuations.
as a healthy allocation to cash.
NatWest UBS
Whilst there are some tentative hints that policymakers are becoming For the US, we now expect near zero growth in both 2023 and 2024
less hawkish, we do not expect any policy “pivot” (i.e. rate cuts) in 2023. (roughly 1 percentage point below consensus), and a recession to start
The scale and persistence of the inflation overshoot in 2022 is likely to in 2023. Combined with inflation falling rapidly (50 basis points below
have resulted in reaction functions becoming more reactive for policy consensus), the Fed would cut the Federal Funds rate down to 1.25% by
easing. Policy rate cuts in the US, euro area and UK are not expected early 2024. The speed of that pivot will drive every asset class next
until 2024. year.
113 of 115 09/01/2023, 10:00 a.m.

WAGES

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
or two later.
CONSUMERS

Our outlook for 2023 remains uncertain and will hinge on whether the Industry analysts currently expect S&P 500 earnings growth to be in the
Fed is able to rein in inflation while keeping us out of recession. But high single digits by the end of the year, with 2023 growth in the 5%
because the labor market continues to show strength, lending support range. We believe these expectations are reasonable, especially if the
to the consumer sector—the largest part of the economy—we are labor market and consumer spending remain healthy and inflation
cautiously optimistic that the economy and markets will move in a weakens.
positive direction in the new year, though there may be some bumps
along the way.
DWS Generali Investments

The looming mild recession in the US and the euro zone will be very We see the Fed peak at 5% in March, but the risks lie towards the Fed
different from previous downturns. Thanks to the demographically hiking more as consumer demand and capex initially prove resilient. We
driven labor market, which is robust even in a downturn, workers will do not see Fed rate cuts before the fourth quarter, i.e. not as fast as the
keep their jobs – for the most part – household incomes will remain implied curve is suggesting.

While a recession is a very real possibility, investors may be surprised by Growth is likely to end 2023 flat or slightly negative in most major
the resilience of the global economy – even with such a sharp tightening economies outside of China. Unemployment is likely to rise over the
in financial conditions. The labor market will certainly cool, but healthy year but nowhere near as high as during the 2008 and 2020 downturns.
household balance sheets should continue to support spending in the Through job losses and slowing consumer demand, a downtrend in
services sector. Moreover, some of the major drags on the world inflation is likely to persist through 2023.
MONETARY POLICY
T. Rowe Price
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
114 of 115 09/01/2023, 10:00 a.m.

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,
See outlooks for previous years: 2022, 2021, 2020 and 2019
This article has been compiled by Bloomberg News by sampling views and research shared with the
media and/or publicly accessible online. Much of the content was originally issued as marketing
material and comes with other disclaimers. It is presented here to allow comparison and analysis
across a swath of major financial institutions. Most of the entries have been edited for style, clarity
and/or length, and the list is not exhaustive. Bloomberg has selected views it deems to be key and
capped the number of calls per institution to 15. Institutions often hold multiple views across various
departments, therefore those on display may not represent the full range held by each firm. Where
possible, views from multi-asset or macro teams have been preferred. In a few cases, views from
different departments have been combined. Inclusion is entirely at the discretion of Bloomberg News.
Some institutions may not appear because their research was unavailable, or Bloomberg may have
judged the contents to be out-of-date. Most outlooks for 2023 were published well before the end of
2022, so may not incorporate price moves or events that occurred late in the year, for example the final
Federal Reserve meeting of 2022 or the Bank of Japan’s yield policy adjustment on December 20. Calls
may have been excluded on that basis. Base cases are as identified by Bloomberg, and editorial
judgment has been used throughout.
Editor: Sid Verma
Contributors: Cecile Gutscher, Paul Dobson, Abhishek Vishnoi and Vildana Hajric
Production: Jeremy Scott Diamond
Photographer: Mark Newman/Getty Images
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Wall Street Predictions For 2023 Global Recession, Bond Surge, Dollar Drop

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Here’s (Almost) Everything Wall Street

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Amundi Asset Management AXA Investment Managers

Bank of America Barclays

BCA Research BlackRock Investment Institute

BNP Paribas BNY Mellon Investment Management

Brandywine Global Investment Management

Citi Global Wealth Investments Columbia Threadneedle

Comerica Wealth Management Commonwealth Financial Network

Credit Suisse Deutsche Bank

3 of 115 09/01/2023, 10:00 a.m.

Fidelity Franklin Templeton

Generali Investments Goldman Sachs

HSBC HSBC Asset Management

JPMorgan JPMorgan Asset Management

Macquarie Asset Management

Morgan Stanley NatWest

Ned Davis Research Neuberger Berman

4 of 115 09/01/2023, 10:00 a.m.

Northern Trust Nuveen

Pictet Asset Management Pimco

Principal Asset Management

Societe Generale State Street

T. Rowe Price TD Securities

Truist Wealth UBS

UBS Asset Management

5 of 115 09/01/2023, 10:00 a.m.

Wells Fargo Wells Fargo Investment Institute

Amundi Asset Management Amundi Asset Management

Amundi Asset Management Amundi Asset Management

AXA Investment Managers AXA Investment Managers

AXA Investment Managers AXA Investment Managers

AXA Investment Managers

AXA Investment Managers Bank of America

6 of 115 09/01/2023, 10:00 a.m.

The recession shock likely means corporate earnings and economic

Bank of America Barclays

Barclays BCA Research

BlackRock Investment Institute BNP Paribas

BNP Paribas BNY Mellon Investment Management

BNY Mellon Investment Management BNY Mellon Investment Management

BNY Mellon Investment Management BNY Mellon Investment Management

BNY Mellon Investment Management

7 of 115 09/01/2023, 10:00 a.m.

China’s exit from Covid proves disorderly. Its stop-go approach to

Brandywine Global Investment Management Brandywine Global Investment Management

Citi Citi Global Wealth Investments

Citi Global Wealth Investments

Citi Global Wealth Investments Citi Global Wealth Investments

Columbia Threadneedle Columbia Threadneedle

Comerica Wealth Management Comerica Wealth Management

Commonwealth Financial Network Commonwealth Financial Network

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Credit Suisse Credit Suisse

Deutsche Bank Deutsche Bank

Franklin Templeton Franklin Templeton

Generali Investments Generali Investments

Generali Investments Goldman Sachs

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