State Street Global Advisors has published its 2023 global market outlook on macroeconomic trends and key investment themes for the year ahead.
In the report titled ‘Navigating a Bumpy Landing’ State Street Global Advisors say that market uncertainty and volatility will persist for some time, and that investors should evaluate their fixed income and downside protection strategies as they await a possible recovery and a better environment for risk-taking.
However, State Street Global Advisors still remain cautiously optimistic that inflation across the globe will trend lower within the next six months. The firm believes that improved supply and slowing demand figures are likely to allow for disinflationary episodes to unfold and expects that more favourable inflation data will allow the Federal Reserve to downshift and likely cut rates in the last quarter of 2023.
The firm also says that equities will begin to sustainably recover in 2023, but points out in its outlook that the pain equity investors feel is unlikely to subside until mid-year, with the exact timing of the relief tied to the actions of central banks.
Speaking about the heightened market uncertainty and volatility, the firm also highlights that investors need to consider the portfolio guardrails they have in place to withstand market disruptions.
Altaf Kassam, EMEA head of investment strategy and research, says: “We believe that the ‘great moderation’ period is over, with central banks less likely to backstop markets as they fight inflation and look to reduce their balance sheets.
“The ‘new normal’ higher-volatility environment should still provide opportunities for equity investors, but it will also likely feature deeper drawdowns and shallower recoveries. Actively managing the risk of the current environment will require effective downside protection strategies.”
Mike Arone, chief investment strategist for the US SPDR Business, says: “As 2023 begins, many investors in the US expect the economy to weaken, corporate profits to face downward pressure, and job losses to rise due to the lag effects of aggressive Fed rate hikes.
“Markets anticipate sub-trend growth in 2023, but investors will likely begin to price in the next phase of the economic cycle before the economic, earnings and job market data begin to show signs of recovery.”
