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This special report from the Hancock Whitney Asset Management team provides our perspectives about 2022 and what could be in store for the markets and economy in 2023.
Markets struggle as the Fed fights inflation
In 2022, the economy and markets were still feeling the ripple effects of the 2020 COVID pandemic, which set the stage for the inflation battle that was waged by the Federal Reserve throughout the year.
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Key Investment Themes for 2023
Here are some themes that we believe are likely to be important market considerations in 2023:
Economy
- Real GDP Q/Q growth trends around 0% for the first half of 2023 due to weak to modest consumption, layoffs, a continuing housing recession, and sluggish capital spending.
- 2 - 3% Q/Q AR growth in the second half of 2023 as consumer spending and capital investment should recover quickly in the back half of the year.
- Real GDP Y/Y rate near 1.5% for 2023.
- Further disinflation in the months ahead is expected to pull inflation trends closer to the Fed’s 2% objective by year end.
- Key risks for the soft-landing scenario include the tight labor market, improving real wage growth and resilient consumers which could impede the Fed’s inflation suppression strategy.
Stocks
- Markets likely to still struggle and remain volatile to begin 2023 due to significantly reduced earnings growth expectations.
- We expect a return to sales and profit growth in the second half of 2023.
- Equities transition to a new bull market as markets likely bottom sometime in the first half of 2023.
- Risk in stock prices remain high however mostly due to the uncertainty associated with the soft landing versus recession question.
Federal Reserve and Interest Rates
- Fixed income sector attractive again after decade of low yields
- Federal Reserve tapering pace of rate hikes in 2023
- Soft economy will boost demand for high quality bonds.
- Interest rates likely remain “higher for longer.”
Government Policy
- With a divided Congress, there are limited prospects for legislation.
- A debt ceiling stand-off is likely in second or third quarter.
- White House is likely to use executive tools to further its policy aims.
- 2024 election cycle should start to heat up in first half of 2023.
- Outlook is dim for an end to war in Ukraine and risk of escalation is high.
For an in-depth and detailed look at these themes and more, we invite you to download our 2022 Year in Review and Outlook for 2023 report.
Talk with a trusted professional
While the current environment can be volatile and stressful for many in the short term, the key to successful investing is to stay disciplined in your approach. The Hancock Whitney Asset Management team is ready to guide your portfolio to help you achieve your investment goals.
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