Skip to main content Skip to Login Skip to Find An Advisor Skip to Results Skip to footer

What's next for the markets and economy?

Anthony Saglimbene, Chief Market Strategist, and Russell Price, CFA, Chief Economist – Ameriprise Financial

As of Jan. 02, 2023


2022 was a bumpy year for investors. Will 2023 be more of the same—or should investors expect improved conditions in the 12 months ahead?

Below, our chief market strategist and chief economist provide their insights on key narratives and themes to watch for in the year ahead.

As always, the environment is fluid and new developments may require investors to reset their expectations.

The markets

Investors should continue to brace for more market volatility

At the start of 2023, economic pressures could build as consumers and businesses continue to pare back activity in response to elevated inflation, restrictive monetary policies, and higher interest rates. This could result in lower-than-expected profit growth for the next several quarters. As a result, stocks and bonds could continue to grapple with volatility until the Federal Reserve pauses its tightening cycle and interest rates find an equilibrium. Notably, absent a steady risk-free rate, such as the 10-year U.S. Treasury yield, we believe investors may struggle to confidently price risk assets as the new year begins.

After a transition period, 2023 may finally bring relief to equities

Stock and bond prices spent much of 2022 reacting to deteriorating macroeconomic conditions. In 2023, we believe investors may at some point look past ongoing challenges and on to the next phase of the business cycle when growth prospects improve. Historically, stock prices often begin to turn higher before it is clear economic/profit conditions have reached their lows. For example, during the Financial Crisis, the S&P 500 Index bottomed in late March 2009. By comparison, the National Bureau of Economic Research (NBER) didn't call the end of the Great Recession until three months later. Importantly, S&P 500 corporate earnings, on a trailing 12-month basis, didn't bottom until January 2010.

Bottom line: Stocks may turn higher before the data is clear there is reason to hold a more constructive view on future growth. We believe investors can avoid becoming whipsawed during this transition period by utilizing a well-diversified investment strategy and focusing on high-quality, income-producing assets. During transition periods, we believe this strategy can help investors weather the potential for further downside and participate in the eventual recovery.

The environment could become more favorable for stocks as 2023 wears on

Stocks may see further pressure in the months ahead and before possibly participating in a more prolonged recovery phase later in the year. Our base case forecast calls for flat-to-negative S&P 500 earnings growth in 2023. Combined with a modest expansion in the multiple investors may be willing to pay for earnings growth later in the year, we anticipate the S&P 500 Index to finish 2023 higher than 2022 levels.

Inflation, the Fed, and earnings will be the ultimate arbiters of stock performance

If inflation begins to subside at a faster pace, the Fed holds rates at a lower level than most expect, and profit growth remains flat-to-positive, stocks could see more robust returns in 2023, particularly after a challenging 2022.

Conversely, if inflation remains sticky throughout the year, Fed policy tightens aggressively than anticipated, and earnings growth deteriorates more rapidly, the S&P 500 could finish 2023 materially lower than current levels. In our view, investors should balance these dynamics and enter 2023 with a cautious, pragmatic approach to return expectations accompanied by a well-diversified investment strategy.


The economy

An economic slowdown is likely to persist through the start of 2023

U.S. economic growth is likely to slow in 2023 as the cumulative effect of Federal Reserve interest rate hikes weighs on the pace of activity. Currently, we forecast 2023 full-year real Gross Domestic Product (GDP) growth at +0.5% versus 2022 estimated growth of +1.8%. We believe most of the weakness could come in the first half of the year, when we believe interest rates may be at their peak.

Inflation will play a pivotal role in the direction of the economy

In our view, the more important narrative for 2023 will be declining inflation pressures, assuming prices generally follow our forecast. We believe inflation remains the predominant problem as we enter the new year, but recent evidence has been encouraging. Further taming of inflation could enable a more balanced Federal Reserve monetary policy stance sooner rather than later.

We forecast inflation, as measured by the Consumer Price Index (CPI), to decline quickly in the first half of the year. The accelerated pace is partially due to tough year-ago comparisons but combined with improved supply-chain functioning and a slower pace of price appreciation for most goods and services.

While a recession is possible, it’s not necessarily probable

Conditions at some point could meet the definition of “recession,” and we believe the odds of such are slightly better than 50%. If a recession were to arrive, however, we believe it would be relatively shallow considering strong consumer finances, sound corporate balance sheets, and (what we believe would be) a relatively modest increase in unemployment.

Periods of heightened recession risk have historically been associated with heavy consumer debt burdens. Contrary to that historical pattern, consumers are in strong financial shape with low debt-to-income ratios and ample savings.


The year ahead

Investors should hold a flexible view of the macroeconomic environment at the start of the new year and be willing to modestly adjust portfolios/return expectations as conditions change.

Periods of transition are often tricky to navigate and increase the risk of timing errors that can throw portfolios off track. We believe investors are best served by remaining disciplined, fully invested, defensively biased, and prepared to change course once the storm clouds lift.

If you have questions about current conditions and want to discuss your investment portfolio, consider a review with your Ameriprise financial advisor.

Bloomberg are independent investment research companies that compile and provide financial data and analytics to firms and investment professionals such as Ameriprise Financial and its analysts. They are not affiliated with Ameriprise Financial, Inc.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources.  This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned.
The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with investing in stocks, as they can lose value.
There are risks associated with fixed-income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer term securities.
The fund’s investments may not keep pace with inflation, which may result in losses.
A rise in interest rates may result in a price decline of fixed-income instruments held by the fund, negatively impacting its performance and NAV. Falling rates may result in the fund investing in lower yielding debt instruments, lowering the fund’s income and yield. These risks may be heightened for longer maturity and duration securities.
Past performance is not a guarantee of future results.
The Consumer Price Index (CPI) is an inflation indicator that measures the change in the total cost of a fixed basket of products and services, including housing, electricity, food, and transportation. The CPI is published monthly by the Commerce Department and is also commonly referred to as the cost-of-living index. Unless otherwise noted, CPI data in this report is one month trailing.
The S&P 500 Index is a basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted by market value (shares outstanding times share price), and its performance is thought to be representative of the stock market as a whole. The S&P 500 index was created in 1957 although it has been extrapolated backwards to several decades earlier for performance comparison purposes. This index provides a broad snapshot of the overall US equity market. Over 70% of all US equity value is tracked by the S&P 500. Inclusion in the index is determined by Standard & Poor’s and is based upon their market size, liquidity, and sector. It is not possible to invest directly in an index.
Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.
Ameriprise Financial Services, LLC. Member FINRA and SIPC.

Back to topTop