Expert Insights: 2023 Market Outlook from Leading Investment Banks

2023 Economic Outlook

As we turn the page on another year and look ahead to 2023, it’s natural to wonder what the future holds for the financial markets. To get a better sense of what to expect, we’ve turned to some of the biggest investment banks and asset managers in the world for their predictions on what’s in store. In this blog post, we’ll summarize the 2023 market outlook from these experts, highlighting any key themes or trends that they see on the horizon. Whether you’re an investor, a trader, or simply interested in staying on top of financial news, this should provide a valuable resource for understanding what the year ahead might have in store.

J.P. Morgan

Housing Activity to Take a Hit in 2023

Analysts at J.P. Morgan highlighted that it is important to consider the behaviour of inflation as economic activity slows. If inflation slows as well, central banks will likely stop raising interest rates and any recessions that occur will likely be mild. However, if inflation does not slow, the situation could be more difficult. Currently, there are signs that inflationary pressures are moderating and will continue to do so in 2023.

One area that is often an early indicator of changes in monetary policy is the housing market. Higher mortgage rates are currently dampening demand for new homes and this weak housing activity is expected to have a ripple effect on other areas of the economy in 2023. This includes a slowdown in construction, reduced spending on household durables, and potentially lower consumer spending due to declining home prices. While this could help to tame inflation, the risk of a significant housing-led recession similar to the one experienced in 2008 is relatively low.

There are several reasons for this. First, housing construction has been relatively subdued in recent years, meaning there is less risk of an oversupply of homes driving prices down. Additionally, those who have recently purchased homes at higher prices have generally been constrained by stricter lending standards, such as loan-to-value and loan-to-income ratios. Finally, the impact of higher interest rates on mortgage holders is likely to be less severe due to the low percentage of adjustable-rate mortgages in the US and the relatively high amount of fixed-rate mortgages in Europe.

Europe’s Resilience in Face of Energy Crisis

One key risk for Europe in the coming year is its energy supply, especially as Russia, a former supplier of 40% of Europe’s gas, stopped its supplies over the summer. However, Europe has managed to fill its gas tanks with liquified natural gas from the US and has also been fortunate to experience a mild autumn, meaning its storage tanks are almost full going into the winter months. Unless there is a sudden cold snap, it seems likely that Europe will be able to avoid energy rationing this winter. The gas in storage was obtained at a high price, but governments have largely shielded consumers from the impact of higher energy prices. It remains to be seen if this support will continue into the spring.

Mild Recessions Forecast

It is expected that signs of inflation responding to weakening activity will emerge in the coming months and while inflation may not return quickly to 2%, central banks are likely to be satisfied as long as it is heading in the right direction.

There are two groups of bearish forecasters, those who believe that a deeper recession and larger rise in unemployment will be necessary to drive away inflation similar to the 1970s and those who argue that moderate recessions are difficult to engineer and have a tendency to spiral out of control. However, this time, investment and housing growth have been more modest and the commercial banks are well-capitalized and stress-tested, meaning there is less risk of a credit crunch. While 2023 is expected to be a difficult year for economies, the worst of the market volatility is believed to be behind us and both stocks and bonds are looking increasingly attractive.

Equities Outlook: Bullish

In the 2023 market outlook, J.P. Morgan believes that developed market equities will experience positive returns, largely due to the fact that a moderate recession has already been priced into many stocks. The S&P 500 has already declined 25% from its peak, which historically has been followed by a rise in the stock market a year later, with only two exceptions since 1950. They do not see the current situation as similar to the 2008 financial crisis but say that there are some valuation similarities with the dot-com bubble in 2000.

If valuations still need to fall significantly, this could pose a risk to their bullish outlook for stocks. However, JPM believes that value stocks, which are currently reasonably priced compared to historical standards, have a stronger chance of being higher by the end of 2023 than growth stocks, which still appear expensive. Additionally, a peak in government bond yields could provide some support to growth stock valuations.

Another risk to equities is that current consensus earnings expectations may be too high, but they believe that the market has already priced in a moderate decline in earnings.

Overall, while they are not calling the bottom for equity markets, analysts at J.P. Morgan do think that the risk versus reward for equities in 2023 has improved due to the declines seen in 2022, and the probability that stocks will be higher by the end of the year has increased enough to make it their base case.

Overall Projections

According to J.P Morgan’s 2023 market outlook, a mild recession is expected in developed markets in 2023 due to a variety of factors including tighter financial conditions, less supportive fiscal policy in the US, geopolitical uncertainties, and a loss of purchasing power for households. Despite remaining above central banks’ targets, inflation is expected to moderate as the economy slows, the labour market weakens, supply chain pressures ease, and Europe works to diversify its energy supply. However, the environment remains unusual, and it is important to continue monitoring risks, which are skewed towards the downside. To read more about the 2023 market outlook find more from J.P. Morgan.


Expect a Tough Road Ahead in 2023

According to Barclay’s 2023 market outlook, analysts expect global growth to slow significantly in 2023, with a predicted rate of 1.7%. This is a significant decrease from the 6%+ growth experienced in 2021 and the 3.2% growth expected for 2022.

Inflation is expected to rise slowly, with an average increase of 4.6% in consumer prices worldwide. Advanced economies, including the euro area, the UK, and the US, are expected to enter a recession. China’s growth is predicted to be below consensus at 3.8%, due to a slow shift away from zero-COVID policies and a sluggish property sector. India is expected to be a bright spot, but its economy is not large enough to significantly impact the global outlook

Central Banks Holding Tight Even as Economies Struggle

Central banks in Australia, Canada, and Europe have all indicated a slower pace of tightening or have made policy changes in that direction. However, these changes are not expected to reverse quickly due to high levels of inflation and low unemployment rates in the US, Europe, and the UK.

Even if central banks halt tightening early in the year, they may have to increase rates later on. In the US, the Federal Reserve expects the unemployment rate to rise to 4.3% and the funds rate to reach 4.6% in 2023, as the effects of the previous year’s hikes are felt. Some analysts predict higher unemployment and a lower funds rate, but either way, restrictive Fed policy is expected to result in significant job losses in the US.

Research Team Bearish on Risk Assets for Another Quarter

According to Barclay’s 2023 market outlook, analysts believe global equity markets have the potential to drop further in 2023. They predict that US stocks will bottom out 30-35% below the peak in the middle of a recession, resulting in a fair value of 3200 on the S&P 500 in the first half of the year.

European valuations are seen as more reasonable, but the macro outlook for the region is worse than in the US. The analysts believe that bonds have limited downside and would be overweight on core fixed income over equities. They also expect the cash to perform well in 2023, with US front-end yields likely to reach 4.5% or higher and remain there for several quarters. The ability to earn a high yield with little risk is expected to weigh on both stock and bond markets. To learn more about the 2023 market outlook, read more on Barclays.

Goldman Sachs

Growth Expectations

During 2022, global growth slowed significantly due to various factors including the diminishing effects of reopening after the COVID-19 pandemic, tightening of fiscal and monetary policies, ongoing restrictions in China due to COVID-19, a decline in the property market, and an energy supply shock resulting from the Russia-Ukraine war.

It is expected that the world will continue to grow at a slower-than-average rate of 1.8% in 2023, with a mild recession in Europe, a difficult reopening in China, but also pockets of strength in the US and some emerging markets such as Brazil.

Recession Unlikely for the US in 2023

Over the past year, the growth of the US economy has slowed to around 1%, below its potential, due to a diminishing boost from reopening after the COVID-19 pandemic, declining real disposable income driven by fiscal normalization and high inflation, and aggressive monetary tightening.

It is expected that growth will remain at this pace in 2023. According to a forecast, there is a 35% probability that the US economy will enter a recession in the next 12 months, which is lower than the median of 65% among forecasters in a recent Wall Street Journal survey. This lower probability is due to positive indicators in recent activity data and the expectation of an upturn in real disposable personal income in the coming quarters, which is likely to offset the negative effects of tightening financial conditions.

Additionally, this cycle is different from previous high-inflation periods due to the unprecedented job openings and strong labour market recovery in the aftermath of the COVID-19 pandemic, as well as the normalization of supply chains and rental housing markets, which are sources of disinflation not seen in previous high-inflation episodes.

Mild Recession Expected in Europe in 2023

In contrast to the US, the Euro area and the UK are likely in recession due to significant increases in household energy bills, which are expected to boost headline inflation to peaks of 12% in the Euro area and 11% in the UK. This high inflation is expected to negatively impact real income, consumption, and industrial production. It is forecast that real income will decline by 1.5% in the Euro area through 2023 Q1 and 3% in the UK through 2023 Q2, before improving in the second half of the year.

Industrial production in energy-intensive sectors such as chemicals and metals is also expected to decline as a result of rising energy costs. The Euro area is forecast to experience a 0.7% decline in real GDP (2022 Q4-2023 Q2) and the UK a 1.7% decline (2022 Q3-2023 Q2). However, the risk of a deep recession in Europe has decreased, and there is expected to be some resilience in the form of continued growth in certain sectors, a potential decline in household saving rates and an increase in consumer credit, and a rebound in the service sector.

The forecast for Euro area growth in 2023 has been revised upward to -0.1% (from -0.4% previously). Core inflation in the Euro area is expected to reach a peak of 5.3% year-over-year in December before gradually declining to just above 3% by the end of 2023. In the UK, core inflation is expected to peak around the current time and gradually decline to around 2.5% by the end of 2023.

China’s Reopening Proves Bumpy in 2023

According to a forecast, China’s growth is expected to be slow in the first half of 2023 due to the Zero Covid Policy (ZCP), which is expected to remain in place during the winter. It is expected that the actual reopening will not begin until April due to the time needed for medical and communication preparations. As a result, weak growth is expected in the fourth quarter of 2022 and the first quarter of 2023.

However, a significant growth boost is expected in the second half of 2023, which is expected to continue into 2024, as ZCP is lifted and immunity levels rise.

Cyclical headwinds such as a tightening of fiscal policy and the fading of pandemic-related export growth are expected to offset some of this growth. Structural headwinds such as the contraction of the property sector and US export restrictions on advanced chips are also expected to impact China’s growth. Inflation and the policy rate are expected to remain low, with core CPI expected to increase slightly from 0.7% to 1.2% and the policy rate remaining flat at 2%. However, long-term growth is expected to be slower than consensus estimates due to declining demographics and productivity and the ongoing slide in the property market.

Progress Made, but Uncertainty Persists

According to Goldman Sachs, there are two main risks to the global economy in 2023. One risk is that central banks will be unable to bring down inflation to more acceptable levels without a recession or deep recession, as inflation pressures remain high and central banks are forced to tighten aggressively.

The other main risk is that underlying inflation does come down but central banks are late in recognizing this due to their focus on lagging indicators of inflation. In addition to these risks, the analysis also highlights the potential for political and geopolitical shocks to affect the global economy through increased uncertainty, tighter financial conditions, or negative impacts on commodity supply.

Despite these risks, the analysis notes that some of these risks have decreased in recent months, such as election-related disruptions and the possibility of a settlement in the Russia-Ukraine war. However, other risks remain, including political instability in the Middle East and the uncertain impact of price caps on Russian oil. To learn more about the 2023 market outlook, Read more from Goldman Sachs.

Morgan Stanley

Equities: Resilient Economy in 2023 With No Looming Collapse

In 2022, the consensus view was that earnings would collapse early in 2023 and bring the stock market down with them. However, financials, industrials, and materials have all outperformed, suggesting otherwise. The consensus may be wrong and the “looming collapse” in earnings may not happen.

The yield curve, which is a measure of long-term bond yields compared to short-term bond yields, is inverted, but it is not a good predictor of when a slowdown will occur.

The five largest tech stocks made up about 25% of the S&P 500 index at their peak in 2022, but regulatory scrutiny and slowing growth rates may cause these mega-cap stocks to underperform. Non-U.S. markets, particularly Asia ex-Japan, have outperformed the U.S. since the end of October. China, with its zero-COVID policies and a weaker dollar, may be an attractive equity area for 2023.

Income: A Year of “Long and Variable Lags”

In 2023, monetary policy is expected to continue to be a key driver of asset prices. The Federal Reserve’s (Fed) mission is to lower and maintain inflation within its target range of 2%-2.5%. However, the pandemic has caused supply shortages and excess demand, leading to high inflation that has been difficult to tame due to a tight labour market.

The Fed’s plan is to gradually increase policy rates to around 5% and hold them there for an extended period, even if the economy experiences a mild recession. This strategy carries risks, such as lower earnings, falling margins, and rising default risks, which could negatively impact equity and credit valuations.

In 2023, the Federal Reserve (Fed) is considering keeping policy rates higher for a longer period in order to tame inflation, even if it means causing economic growth and asset valuations to suffer in the short term.

The Fed believes that this aggressive action now may prevent the need for more aggressive action later and minimize the overall impact. If the Fed’s plan is successful, it may benefit asset valuations over the long term. However, in the short term, high-quality bonds may benefit while riskier assets and lower-quality credit may suffer. Investors should be prepared to adjust their positions as events unfold.

Global Income: Fed “Pivot Trade” to Drive 2023 Fixed Income Markets

In the fixed-income market in 2022, sell-offs occurred across the board due to duration exposure and credit spread widening. Inflation was higher than expected and the Federal Reserve (Fed) began raising rates, leading to the yield curve inverting with the front end selling off and the back end rallying.

As of December, there has been a shift and some spreads have started to narrow as the credit market begins to anticipate a Fed “pivot,” meaning that rate increases may come at a slower pace than in the second half of 2022.

For 2023, three areas that may be attractive for fixed-income investment are high-quality spread products such as agency mortgage-backed securities and securitized products, U.S. duration, and emerging markets debt.

In the fixed-income market in 2023, the most important factor will be the level of medium-term inflation. It is expected that inflation will continue to decline due to a slowdown in demand as the U.S. economy weakens and improvements in supply-side constraints. However, if inflation unexpectedly increases, it may prompt the Fed to be more aggressive, leading to poor performance in the fixed-income market. The Fed is expected to moderate the pace of rate increases and has indicated that monetary policy has “long and variable lags,” signalling a shift towards a more dovish stance. Fixed-income markets in 2023 are likely to be influenced by a less aggressive Fed and a slowing economy.

Emerging Markets: Exploring Emerging Markets in 2023: Beyond China

Emerging market (EM) equities underperformed in the 2010s, but most EM countries, with the exception of China, have started the 2020s in better economic shape.

In 2022, EM countries such as Brazil, Mexico, India, Indonesia, and the Gulf Cooperation Council outperformed the MSCI Emerging Markets Index and the S&P 500 Index. Factors contributing to this outperformance include better relative growth differentials, healthier EM sovereigns and corporates compared to developed markets, improved EM external balances, and lower valuations for EM equities and currencies. However, China’s growth is expected to be weighed down by high debt, a slowing working-age population, and a decline in the contribution from trade.

Other EM countries are expected to see an acceleration in growth driven by post-COVID recovery, a manufacturing revival, a commodity boom, a boost to productivity and growth from digitalization, and favourable political cycles. Despite these positive factors, EM equities are currently trading at crisis-level valuations and are under-allocated by investors. Active management can add value by focusing on country and stock selection and structural themes.

Multi-Asset: Rebalancing Acts

In 2023, global rebalancing may be a significant market driver, with three main areas of focus: labour markets, the energy crisis, and China’s structural reform shift.

In developed markets, the post-COVID employment situation has benefited workers over employers, but the labour market remains strong. However, labour market rebalancing is likely to be slower in Europe, with higher risks of a wage-price spiral. The industrial sector in the eurozone is experiencing labour shortages, which may lead to sustained tight employment markets and higher wage-induced price pressures.

Energy Market & China

In 2023, the energy market is expected to undergo a transition with higher prices for oil and gas combined with slowing economic activity causing a decrease in demand. However, sanctions on Russia may result in limited gas supplies globally, causing some buyers to switch to oil. OPEC’s decision to cut production quotas demonstrates the influence of high prices on investment. Prices are predicted to remain in the $90 to $100 per barrel range, with the potential to increase if China’s zero-COVID policy leads to a successful reopening and normalization of demand.

In 2023, there are expected to be significant changes in China as the country shifts towards a consumption-led economy and reduces inequality through its “common prosperity” agenda. The manufacturing and trade sectors are expected to become less important due to rising wage costs and reduced offshoring by Western companies. China is also facing the challenge of managing a COVID reopening while addressing its high corporate debt-to-GDP ratio and saturated property market.

In 2023, monetary policy and economic rebalancing will be important factors for the financial markets. The Federal Reserve will attempt to manage inflation without harming the economy, but there is a risk of a shallow recession. In addition, labour market and energy challenges may complicate the economic rebalancing process in Europe and China. Fixed-income assets are expected to outperform equities in the first half of the year, but the path to rebalancing will be important for markets overall. It will be important to stay nimble and adjust investment positions as events unfold. To learn more about the 2023 market outlook, Read more from Morgan Stanley.

Deutsche Bank

Stop-and-Go Growth in 2023 Market Outlook

Economic momentum is expected to be weak in the early part of 2023, with mild recession anticipated in the Eurozone and a potential slowdown in the U.S. The Eurozone is experiencing a restrictive monetary policy that is limiting both inflation and economic growth, while also implementing an expansive fiscal policy in an effort to support the economy and mitigate the impact of the current energy crisis.

The deposit rate for the European Central Bank is expected to increase to 3% during the year, with Germany planning fiscal measures equivalent to about 7.5% of its gross domestic product.

A soft landing is possible in the U.S., with evidence of a slight downward trend in inflation potentially leading the Federal Reserve to focus more on economic growth and implementing smaller increases to the base rate.

Economic momentum in China is expected to be stronger in 2023, with growth of around 5% anticipated after an estimated 3.3% growth in 2022. Long-term economic growth potential is dependent on the production factors of labour, capital, and technological innovation, with a particular emphasis on technology in developed markets in order to increase productivity in the service sector through the use of artificial intelligence, digitalization, and cloud services. Economic development beyond 2023 is likely to depend on the successful commercialization and integration of new technologies into the economy.

Inflation in 2023: Up and Down

Inflation is a significant concern for Germany, the Eurozone, and the U.S., with estimated consumer price inflation of 8.9%, 8.4%, and 8.2%, respectively, for the full-year 2022. These levels of inflation are expected to remain above the targets set by central banks in 2023, with inflation of 7.0% expected for Germany, 6.0% for the Eurozone, and 4.1% for the U.S. High inflation is anticipated to continue beyond 2023 and is unlikely to return to the relatively low levels seen prior to the Covid-19 pandemic.

Energy prices, particularly for oil, are expected to drive inflation, with potential increases due to demand-side factors such as an acceleration of China’s economy and supply-side factors such as production cuts by OPEC+ and inadequate oil company production capacity.

Central banks are focusing on core inflation, which excludes volatile energy and food prices and is more responsive to changes in the base rate, rather than headline inflation. There is a risk that inflation could be higher than expected, requiring central banks to implement stronger interventions.

Bonds in 2023: Equilibrium in Sight

In 2022, the bond market experienced significant volatility due to rising inflation and tighter monetary policies implemented by central banks. This resulted in significant yield increases, with 10-year U.S. bond yields rising from 1.5% at the end of 2021 to around 4%, and the average yield on investment-grade European corporate bonds reaching 4.3%, compared to 0.5% at the end of 2021. However, 2022 may be seen as a transition year, with 2023 potentially offering more attractive investment opportunities as the bond market stabilizes.

Average inflation forecasts for the next five years in the U.S. are currently around 2.5%. Investors may prefer liquid and investment-grade bonds from the U.S. and Europe in the near term but may shift towards riskier and higher-yielding corporate bonds in the course of 2023.

The bond market is expected to remain volatile and active bond portfolio management will continue to be important, along with the dynamic management of maturities and default probabilities. Investors who are willing to take risks may also consider exploiting potential exchange rate differences.

2023 FX Outlook: King Dollar Reversing Course

The strength of the U.S. dollar in 2022 was due to strong inflows due to higher returns in the U.S. and its status as a safe haven currency. However, the difference in returns between the U.S. and the Eurozone is expected to decrease as the U.S. interest rate cycle reaches its peak in spring 2023 and the European Central Bank raises interest rates further.

The EUR/USD exchange rate is expected to be around 1.05 at the end of 2023. The Japanese yen and Swiss franc are also seen as safe haven currencies and are expected to appreciate in value in 2023, while the pound sterling may continue to decline due to economic difficulties in the post-Brexit United Kingdom.

The Brazilian, Uruguayan, Chilean, and Peruvian currencies are expected to be among the strongest in 2023 due to high commodity prices and the implementation of higher base rates by central banks in South America. The currencies of other commodity-exporting countries, such as Australia, Canada, and Norway, may also appreciate the following pressure in 2022.

Stocks 2023 Market Outlook: From TINA to TAPAs?

In 2022, stock prices were impacted by geopolitical uncertainty, rising inflation, and a bond market sell-off, leading to lower equity valuations. The MSCI World Index’s price-to-earnings ratio was 15x at the start of November 2022, a decline of 25% from the start of the year and 7% below its 10-year average.

For 2023, it is expected that nominal company profits will match the prior year’s levels and will not fall as they have in previous recessions, due to the expected nominal growth of the gross domestic product. The stock market is currently transitioning from a low valuation phase to a medium valuation phase and single-digit percentage price increases are expected.

Defensive sectors may continue to outperform in the medium term, but financials, materials (excluding chemicals), and energy stocks are seen as attractive due to their value-oriented, cyclical nature and depressed valuations.

Europe is expected to be a focus for investors in 2023 due to its attractive valuations and expected economic and Chinese growth, while the U.S. stock market may carry more investment risks due to its technology bias and potential weakening of the U.S. dollar.

In terms of emerging economies, Asia ex-Japan and Latin America are seen as particularly attractive due to their strong economic growth and attractive valuations. To learn more about the 2023 market outlook, Read more from Deutsche Bank.


As we enter 2023, investment banks and asset managers have offered their insights on the 2023 market outlook. J.P. Morgan highlights the potential for a slowdown in housing activity and its ripple effects on the economy but notes that the risk of a significant housing-led recession similar to 2008 is relatively low.

Europe is facing the risk of an energy crisis but has so far managed to avoid rationing thanks to a mild autumn and the use of liquified natural gas from the US. Forecasters expect mild recessions in the coming year, with the worst of market volatility believed to be behind us and both stocks and bonds looking increasingly attractive. Equities in the US and Europe are expected to continue their strong performance, while emerging markets may see a slowdown.

Overall, while 2023 may present some challenges, the expert predictions suggest that the markets are well-positioned to weather any potential storms.

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