by Nadeem Kassam, MBA, CFA, et al, Chief Market Strategist, Raymond James Canada
2023 Outlook – It’s Complicated…
It’s been a whirlwind year for most investors who have had to navigate through a challenging period full of elevated levels of volatility and high uncertainty. The “wall of worries” for investors has continued to evolve, from persistent COVID-19 concerns to the economic/market worries that followed, including fears of an impending recession. For 2023, we expect another challenging year ahead for investors with the level of uncertainty to remain high. But with markets selling off as economic/corporate fundamentals continue to normalize this year, albeit down from very-high/unsustainable levels, we are now seeing a more compelling risk/reward profile for both stocks and bonds globally than we did at the start of the year. For long-term oriented investors, we suggest to: 1) Stay invested and well-diversified; 2) Ignore the headlines; 3) Stick to your investment plan; 4) Capitalize on mispricing/bargains in the marketplace across asset classes; and, 5) Remain selective and focus on allocating capital to securities that offer a compelling risk/reward profile – avoid places to hide and instead focus on places to invest.
2022 – The Great Normalization!
The economy entered 2022 on a solid footing only to slow materially from peak levels reached in June 2021 when global real GDP rose by 13.1 per cent year-over-year (YoY) versus the 20-year average of 3.5 per cent YoY. Real GDP growth is now set to slow materially from the peaks with the consensus now calling for an increase of only 2.5 per cent and 1.5 per cent YoY in 2022 and 2023, respectively. Inflationary pressures have been very “real” in 2022. While initially viewed by the majority as only a transitory issue and primarily fuelled by the pandemic, inflationary pressures have since broadened out this year to all components in the consumer price index (CPI) basket, including both goods and services. However, we are seeing strong signs that peak inflation is likely behind us, with pressures moderating rather quickly. Monetary and fiscal policy measures, which were ultra-loose at the start of the year, have since tightened aggressively. Pandemic-related fiscal measures have ended, while interest rates have risen at the fastest pace on record! All of these rather abrupt and rapid changes have triggered an aggressive sell-off in global markets and asset classes in 2022, resulting in a complicated outlook for 2023.
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