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December 2022 / MARKET OUTLOOK

Global Market Outlook 2023

The Need for Agility

After more than a decade of relatively benign markets, the investment environment rapidly changed in 2022 as historically high inflationary pressures forced global central banks to aggressively raise interest rates.

With expectations of a prolonged period of higher inflation and elevated rates, T. Rowe Price CIOs Andrew McCormick, Sébastien Page, and Justin Thomson discuss the key implications of ‘regime change’ in the 2023 Global Market Outlook.

Agility is set to be paramount in the year ahead, as uncertainty lingers over the severity of the coming slowdown. With the era of cheap money and multiple expansion likely to be over, the CIOs believe investors must be willing to be selectively contrarian when looking to exploit opportunities across the major asset classes.

 

Explore our four themes:

Navigating the economic balancing act
The outlook for inflation and interest rates will remain critical in 2023, as investors try to estimate where rates will peak and when the Fed might ‘pivot’ towards monetary easing. 

US consumer inflation slowed in late 2022, thanks to a partial unwinding of the oil and other commodity price spikes seen earlier in the year. But inflation in the services sectors remained ‘sticky’, as tight labour markets continued to push wage costs up at a relatively rapid clip.

Expect a change in equity leadership
Soaring bond yields largely drove equity bear markets in 2022 by compressing valuation multiples. But in 2023, earnings growth could move to the top of the list of investor concerns. 

As of the end of November, forward consensus estimates predicted mid‑single‑digit growth in earnings per share (EPS) for the US and Japan over the following 12 months, and even slower EPS growth in Europe and emerging markets. Those estimates appear overly optimistic, as past US recessions typically have resulted in 15% to 20% earnings declines for the S&P 500 Index.

Threats and opportunities as yield returns
A brutal year for bond markets in 2022 ended with a silver lining for investors – it raised fixed income yields to some of the most attractive levels seen since the global financial crisis. Higher yields were mirrored in greatly improved valuations for both sovereigns and private credits, with many sectors selling close to or below 15‑year historical medians, as of late November. Higher‑quality credits in the mortgage backed and asset‑backed sectors are also attracting inflows from investors looking to put cash to work or extend duration.

Reports of globalisation’s death greatly exaggerated
Geopolitical tensions and supply disruptions have led some analysts to question whether an era of economic integration has ended, dimming prospects for productivity and growth. But that risk appears to have been exaggerated. 

Globalisation is not dead. It may not even be dying. Economically, globalisation has been defined by the five-fold rise in international trade as a percentage of world GDP since the early 1950s. While this ratio has stopped rising, it is also not falling.

 

Read our full 2023 Global Market Outlook (PDF)

 

IMPORTANT INFORMATION

This material is being furnished for general informational and/or marketing purposes only. The material does not constitute or undertake to give advice of any nature, including fiduciary investment advice, nor is it intended to serve as the primary basis for an investment decision. Prospective investors are recommended to seek independent legal, financial and tax advice before making any investment decision. T. Rowe Price group of companies including T. Rowe Price Associates, Inc. and/or its affiliates receive revenue from T. Rowe Price investment products and services. Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested.

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Information and opinions presented have been obtained or derived from sources believed to be reliable and current; however, we cannot guarantee the sources’ accuracy or completeness. There is no guarantee that any forecasts made will come to pass. The views contained herein are as of the date written and are subject to change without notice; these views may differ from those of other T. Rowe Price group companies and/or associates. Under no circumstances should the material, in whole or in part, be copied or redistributed without consent from T. Rowe Price.

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December 2022 / MARKET OUTLOOK

Webinar replay: 2023 Global Market Outlook

Webinar replay: 2023 Global Market Outlook

Webinar replay: 2023 Global Market Outlook

With volatility ahead, agility can be a great source of opportunity

By Andrew McCormick, Justin Thomson & Sébastien Page

By Andrew McCormick, Justin Thomson & Sébastien Page