We have been consistent with our advice this year that investors will need to remain patient in this post-pandemic period as multiple factors roil global markets and slow global economic growth. We see a likelihood of recession in Europe and increasing odds that there could be a recession in the United States as central banks raise rates to battle inflation. Adding fuel to the fire, U.S. Dollar-denominated debt is squeezing emerging economies, China is facing down a serious debt bubble in housing, oil prices are on the rise again with OPEC’s recent supply cut, and Putin’s war in Ukraine rages on.

The interest rate increases in the system—and a less coordinated and slowing global economy—are already creating demand destruction and reversing inflation in several industries. The less comfortable reality, though, is that some areas of inflation (e.g., wages and rent) will take more time to react to the medicine in the system and that policy will remain tighter for longer than many had hoped across many parts of the globe. Tighter policies for longer could mean slower growth for longer, which means that earnings estimates for 2023 will likely continue to come down in the months to come and that stocks could continue to feel some pressure. While a great deal of bad news is already discounted in equity valuations across the world, we would not be surprised to see markets give a little more back in this bear market.


The Long Run – January 2023