2023 Midyear Market Outlook

Finding the Signal Through the Noise

Moving into the second half of 2023, the balance of economic forces still appears tilted against global capital markets. Sticky inflation, central bank tightening, and financial instability all pose clear risks.  

In this uncertain environment, skilled active management is required to distinguish the signal from the noise—the useful information from the meaningless data points.

Market Outlook Themes

Economies and markets showed surprising resilience in the first half of 2023. The second half will bring further tests as the impacts of higher interest rates and tighter liquidity are fully felt.

Chart titled, “Core Inflation Is Still Sticky,” showing consumer prices less food and energy, year-over-year change. Data demonstrates a sharp increase in percentage of core inflation starting in 2021, with a slight decrease and levelling off in 2023 to approximately 5.5%.
Photograph of, and quote from, Arif Husain, Head of International Fixed Income and CIO. Quote reads: “Anyone who universally says that ‘bonds are back’ is being a little too optimistic. Some bond markets are back.”

Yields are high, but an inverted curve means investors may want to think twice before aggressively jumping into longer‑term U.S. bonds. Bottom-up research and skilled security selection will be critical to manage risk.

While key global equity markets delivered positive returns in the first half of the year, earnings growth estimates have come down and may fall further. Still, there appear to be pockets of select opportunities.

Photograph of, and quote from, Sébastien Page, Head of Global Multi-Asset and CIO. Quote reads: “Skilled active management can help investors avoid riskier exposures.”
Watch Ritu Vohora to get the most important takeaways from the 2023 Midyear Market Outlook in two minutes.
View Transcript

As we look forward to the rest of 2023, key themes for markets remain centered on inflation, monetary policy, and recession risk. However, macro signals are mixed, with stock and bond markets pricing in different scenarios – the latter implying recession. In this environment, effective active investing is about finding the signal, through the noise. This task will be especially critical in the coming months, as we look for signs of financial market recession, as a precursor to an economic recession.

Many economies have demonstrated remarkable resilience this year, despite aggressive rate hikes and the removal of liquidity. Among the tailwinds are strong labor markets, China’s reopening, softening inflation and the Fed nearing an end to its hiking cycle. However, we’ve not felt the full effects of tightening yet. This paints a more bearish perspective heading towards year-end. Furthermore, inflation remains sticky and as such rates are likely to be ‘higher for longer’.

Bond yields have reset to their most attractive levels in decades. But, are bonds back? Investors need to be selective, but there are opportunities as the yield curve normalizes. With monetary policies likely to diverge, taking a global approach - with active duration and curve management, will be critical. We find value in areas such as high yield and emerging market debt. Adding quality duration could also act as a hedge, to a growth shock.

Equity markets have rallied year-to-date; however, it’s been a narrow rally. Generative AI momentum has picked up and is poised to reshape the investment landscape – but investors need to look beyond the hype. And while earnings have been resilient, estimates may be too high amid slowing growth. A focus on profitability and starting valuations will be important. We remain underweight stocks but are leaning into selective opportunities in small caps, emerging markets and Japan.

Market sentiment is likely to gyrate between bullish and bearish narratives. Staying active and diversified will be key, to finding signals amid the noise.

Tactical Allocation Views

As of May 31, 2023

The tactical allocation views are prepared by the T. Rowe Price Multi-Asset Division and informed by a subjective assessment of the relative attractiveness of asset classes and subclasses over a 6- to 18-month horizon.


Outlook remains uncertain due to tight financial conditions, a slowing economy, and elevated valuations. However, a resilient labor market, services sector strength, and positive sentiment around AI are providing support.

Interest rate volatility could remain elevated as central banks continue to balance persistent inflation and growth concerns. Credit sectors continue to offer attractive valuations with broadly supportive fundamentals.

Cash currently offers attractive yields, a shorter duration profile if interest rates drift higher, and provides liquidity should market opportunities arise.

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action. 

Stream the Webinar and Earn CE Credit

Contact Us
RIA & Regional Bank
Variable Annuity

Additional Disclosures

CFA® and Chartered Financial Analyst ® are registered trademarks owned by CFA Institute.

Bloomberg PORT – Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. 

Important Information

This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action.

The views contained herein are those of the authors as of June 2023 and are subject to change without notice; these views may differ from those of other T. Rowe Price associates.

Risks: International investments can be riskier than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as specific country, regional, and economic developments. These risks are generally greater for investments in emerging markets. Small-cap stocks have generally been more volatile in price than the large-cap stocks. The value approach to investing carries the risk that the market will not recognize a security's intrinsic value for a long time or that a stock judged to be undervalued may actually be appropriately priced. Sustainable investing may not succeed in generating a positive environmental and/or social impact.

Fixed income securities are subject to credit risk, liquidity risk, call risk, and interest rate risk. As interest rates rise, bond prices generally fall. Investments in high yield bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities.  In periods of no or low inflation, other types of bonds, such as US Treasury bonds, may perform better than Treasury inflation protected securities.  Investments in bank loans may at times become difficult to value and highly illiquid; they are subject to credit risk, such as nonpayment of principal or interest, and risks of bankruptcy and insolvency. Diversification cannot assure a profit or protect against loss in a declining market.  

This information is not intended to reflect a current or past recommendation concerning investments, investment strategies, or account types; advice of any kind; or a solicitation of an offer to buy or sell any securities or investment services. The opinions and commentary provided do not take into account the investment objectives or financial situation of any particular investor or class of investor. Please consider your own circumstances before making an investment decision.

Information contained herein is based upon sources we consider to be reliable; we do not, however, guarantee its accuracy.

Past performance is not a reliable indicator of future performance. All investments are subject to market risk, including the possible loss of principal. Actual future outcomes may differ materially from any estimates and forward-looking statements made. All charts and tables are shown for illustrative purposes only.

T. Rowe Price Investment Services, Inc. 

© 2023 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart, trademarks or registered trademarks of T. Rowe Price Group, Inc.


Tap to dismiss

Preferred Website

Do you want to go directly to the Financial Advisors/Intermediaries site when you visit troweprice.com ?

You are currently logged in to multiple T. Rowe Price websites.

You will need to log out below and log back in with your Advisor Dashboard credentials.