Considering that a new year almost always brings surprises of one form or another, we’ve highlighted our top five that may define the global markets in 2023.
Housing Market
The declines in Swedish housing prices extended to the eighth straight month, as the worst slump in three decades deepens.
Prices have now declined by 15% since a March peak, according to the HOX housing index from Valueguard, which compiles the data. The rapid slide has made Sweden emblematic of a development that is playing out in countries around the world as consumer prices soar and borrowing costs rise.
Financial Markets and The Federal Reserve
Economists say there is a 7-in-10 likelihood that the US economy will sink into a recession next year, slashing demand forecasts and trimming inflation projections in the wake of massive interest-rate hikes by the Federal Reserve.
The probability of a downturn in 2023 climbed from 65% odds in November and is more than double what it was six months ago, according to the latest Bloomberg monthly survey of economists. The poll was conducted Dec. 12-16, with 38 economists responding about the chance of a recession.
In 2022, the Federal Reserve (Fed) initiated a battle against the highest inflation experienced in the United States in a generation, rapidly increasing interest rates in an effort to slow the economy. As we look ahead to 2023, recession has gone from a distantly possible scenario to the most probable one, and the potential Fed pivot many equity investors are hoping for is unlikely to occur.
A 2023 recession has become the consensus view, with a 62.5% probability among economists surveyed by Bloomberg. Our views are grounded in the reading of the ClearBridge Recession Risk Dashboard of 12 economic indicators, which has been flashing a red—or recessionary signal—for the past four months. Eight of the 12 underlying indicators are signaling recession, including traditional recession precursors like the 10-year/three-month yield curve, which inverted this fall.
This portion of the yield curve has correctly anticipated the last eight recessions, providing an average of 11 months of warning.
2023 Inflation Forecasts
1Q 2Q 3Q 4Q
PCE price index (YoY) 4.6% 3.5% 3.1% 2.8%
Core PCE price index (YoY) 4.2% 3.8% 3.4% 3.0%
That explains why Fed Chair Jerome Powell signaled last week, after the central bank raised its benchmark interest rate to the highest level since 2007, more tightening is in store for early next year. Powell also made clear that the Fed isn’t considering cutting rates in 2023. This year, the Fed raised rates by 4.25 percentage points, including four 75 basis-point hikes.
A key reason the Fed is likely to keep higher rates in place for an extended period is the resiliency of the job market. As the economy weakens, however, employment is seen succumbing. Economists expect payrolls to decline in the second and third quarters, and by the first quarter of 2024 the jobless rate is expected to peak at an average 4.9%.
And after firmer growth in the first half of the year, average hourly earnings are forecast to cool.
Recession Investment Opportunities
What stocks will do well in a recession?
Companies that make basic necessities like consumer staples and food will always have demand, even during an economic downturn – as people need to prepare meals, wash, clean, and so on. Discount stores often do relatively better during recessions because their staple products are cheaper.
What should I invest in ahead of a market crash?
Bonds are considered safe investments because they are not as volatile as stocks. Open and fund a brokerage account at and trade commission-free.
How to prepare for recession 2023?
Here are five steps that financial experts recommend to prepare for a recession.
- Focus on budgeting and building an emergency fund.
- Prioritize paying off high-interest debt.
- Update your résumé
- Get creative about saving.
- If you have savings to invest, be savvy about it.
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