Safe havens dwindle as recession risks roll in

Yasmine Raso

Senior Journalist, Financial Newswire

18 November 2022

T. Rowe Price has released its 2023 global market outlook, signalling another year of market volatility amid persistent inflation, rising interest rates and recession concerns affecting investor decisions.

Several experts from the global investment management firm provided their expectations for how key aspects of financial markets would perform next year, including the global economy, equities, fixed income and asset allocation.

Blerina Uruci, Chief U.S. Economist, said this year was the first in 20 years that global central banks were more concerned with clamping down inflation over supporting or maintaining economic growth, after 274 rate hikes were implemented compared to 117 last year and nine in 2020.

“The economy in 2023 is shaping up as a tug of war between inflation and economic growth. Central banks remain resolute on containing inflation and I expect it will decline next year as global demand slows, inventories rise, and energy prices stabilise, at least in the short-term,” she said.

Expectations of a recession were felt across the board, as John Linehan, Chief Investment Officer and Portfolio Manager of U.S. Large Cap Equity Income Strategy, highlighted how several major equity benchmarks are now trading below their 20-year averages after welcoming the year at record highs.

“The U.S. is entering its first real tightening cycle in twenty years and a recession seems inevitable. However, a recession caused by monetary policy is extremely difficult to predict and, in this case, the range of potential outcomes remains abnormally wide,” he said.

“After a decade led by growth stocks, market leadership over the next ten years is likely to be broader and include a tailwind for companies with shorter duration cash flows, including value stocks.”

Sebastien Page, Head of Global Multi-Asset and Chief Investment Officer, said an “abundance of doom and gloom” in global economies and markets have forced investors to take on a defensive approach into 2023.

“However, the bad news is starting to seep into the pricing of some asset classes and select valuations are compelling. There is little sense in waiting for a market bottom, which are nearly impossible to predict,” he said.

“I believe we are getting closer to a contrarian “buy risk” moment, but we’re not quite there yet. An important risk on the horizon is that fixed income liquidity is deteriorating. If we get a liquidity shock, the key question will be whether the Fed can keep one foot on the brake and one on the accelerator and make it work.”