Inflation started knocking on the door well before the start of 2022. And, then the Russia-Ukraine war began putting more pressure on the supply side factors. Along with other factors, this led to a decade-high inflation in the US. As 2022 ends, the inflation remains untamed despite US Fed on a rate hike spree. US stocks are flirting around the bear market territory and it remains to be seen what’s in stock for stock market investors in 2023. Michael Strobaek, Global Chief Investment Officer, Credit Suisse in Investment Outlook 2023 says, “If 2022 confronted investors with stiff headwinds, 2023 is likely to be challenging as well. After all, financial conditions are all but certain to remain tight and the fundamental reset of macroeconomics and geopolitics is continuing.”
US Fed has hiked rates by 375 basis points before the December 13-14 FOMC meeting. Powell had earlier mentioned that the pace of rate hikes may slow down but the terminal rate will be higher than expected. “Central banks, first and foremost the US Federal Reserve, brought forward rate hikes and have all but demonstrated their determination to bring inflation down by tightening monetary policy aggressively. Indeed, they will not be able to slow the pace of rate hikes before realized inflation falls persistently,” says Strobaek.
Michael Strobaek’s Investment Outlook 2023
We believe the global economy has undergone a fundamental and lasting reset due to the COVID-19 pandemic, shifting demographics, climate change, and weakening business investment in the wake of geopolitical ruptures, among other trends.
The fallout is evident in our longer-term forecasts for the global economy, which we expect will grow at a much slower pace than in the 2010–2019 period. Inflation will remain an issue in 2023, though we expect it to eventually peak and start to decline.
As for financial markets, as inflation peaks and monetary policy reaches restrictive territory, fixed income should become more attractive again. This means that the performance of bonds and equities should again diverge, as we expect equity markets could still be volatile in the first half of 2023 as slower economic growth hits company earnings.