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Wealth Planning

2023 Outlook: Key takeaways

After a volatile 2022, investors could face new challenges and opportunities in 2023. Read what our Global Market Strategists believe is in store for the year ahead.


  • Inflation is still high, but at some point officials will slow rate hikes because economic growth and inflation will likely slow.
  • Core bonds and equity sectors like health care, technology and industrials may outperform or provide investors with cover in 2023.
  • There is no better time than now for investors to consider a balanced portfolio of stocks and bonds.

Uncertainty defined 2022, with the Russo-Ukrainian War, record-high inflation and rising global interest rates wreaking havoc on investment portfolios. What started as a strong year for global markets is ending in a rout.

Nevertheless, although 2022 is shaping up to be one of the worst years for a balanced portfolio, there's opportunity amid the ashes. Stocks are battered, valuations have declined and bond yields are rising which provide an attractive entry point for investors seeking a traditional portfolio of stocks and bonds.

That’s not to say there aren't many “what-ifs?” that must be considered. Will inflation come down enough for the Fed to turn in a more dovish direction? Is a global recession coming? How bad could it be?

In this year’s outlook report, our team of Global Market Strategists at J.P. Morgan explore how tightening monetary policy and global economic weakness will likely affect the financial markets. Conditions may seem bad at present, but our strategists believe that 2023 could provide a compelling opportunity to invest in a balanced portfolio of stocks and bonds.
 

U.S. highlights

  • Inflation has been at a record high for months, but our strategists expect it to fall back to more tolerable levels in 2023.
  • A reduction in inflation, while welcome, likely won’t be enough on its own to convince the Federal Reserve to lower interest rates in the near term. Our strategists expect the Fed and other central banks around the world to keep interest rates high for most of 2023, but they believe the cycle of interest rate hikes should come to an end sometime next year.
  • Talk of a recession has been ongoing for a while, sending bonds and equities down 15% to 25% in 2022. At current levels, our strategists believe that the markets have already priced in plenty of the recessionary risk.
  • Along with core bonds, health care, technology and industrial stocks may provide investors with cover from an economic downturn in 2023.
     

Global highlights

  • High energy prices, inflation and input costs will likely force the European Central Bank to remain hawkish longer than the U.S. Fed in 2023.
  • Europe’s reliance on Russia for energy poses a critical risk to the economy this winter. Policymakers have ramped up natural gas storage levels, but if it's a particularly cold winter, these measures may not be enough.
  • Global economic activity may also face resistance due to a strong U.S. dollar. Most financial transactions and trade are denominated in dollars, making the cost of business pricier for non-U.S. companies.
  • Latin America has benefited from higher energy prices throughout 2022, but with the region’s GDP projected to grow just 1.6% next year, down from 3% in 2022, according to the World Bank, our strategists believe that Latin America wouldn’t be exempt from global weakness.
     

Risks

Beyond inflation and rising interest rates, the global economy faces other risks in 2023 that are on our strategists’ radar.

Financial instability

  • In the fourth quarter of 2022, the Bank of Japan and the Bank of England were forced to intervene in their nations’ currency markets to prevent instability. In Japan, a precipitous decline in the yen eventually required action. In England, the central bank had to step in to protect the country’s bond market and pension system.
  • The financial market’s implied volatility – a gauge of overall financial stability – is currently elevated, with most of the concern lying outside the U.S.
  • It's worth noting that financial systems around the world are globally linked and as a result are vulnerable to instability occurring beyond their borders.
  • Our strategists believe that the prospect of increased financial instability is remote in 2023, but it's something that investors should prepare their portfolios for regardless.

China’s slowing growth rate

  • China’s growth has been stymied by a collapse in the property sector and strict COVID-19 policies. Those themes will likely continue through 2023.
  • Chinese policymakers are directing investment dollars to infrastructure development. The sales of buildings and new construction growth should continue to plummet in 2023.
  • China is focused on economic stability as opposed to stimulus and will likely remain on that path in the new year.

To sum it all up, brace yourself for a bumpy ride in 2023 – one that presents opportunities to pursue a balanced portfolio. Our strategists are mindful of the risks out there but aren't afraid to lean in. You shouldn’t be either.

Read on to learn more of what our strategists have gathered from 2022 and what they believe you can expect to happen in 2023.

 

IMPORTANT INFORMATION

Investment trends may not materialize. Sustainable Investing and investment return are not always aligned, and may lose value.


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