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Quarterly Market Update and Outlook | January 2023

By Nancy Curtin Published January 24, 2023

Read the highlights from our Quarterly Market Update and Outlook. For more detail, please download the full commentary below.

Looking back: 2022 was an anomaly

Both stocks and bonds declined in 2022. As inflation increased, the Fed and other global central banks embarked on monetary tightening by raising interest rates aggressively.

The traditional 60/40 stock/bond portfolio was down 16%, its worst performance since 2008’s global financial crisis and, prior to that, 1932.1

2023 should be a better year for risk assets

Negative returns in both US stocks and bonds over any 12-month window have occurred only 2% of the time since 1926. Back-to-back negative returns in equity markets have happened less than 10% of the time in almost 100-years.2

Net bearishness is close to record highs and investor positioning is cautious. When markets decline and sentiment remains low, future returns are often unusually strong.3

Since 1942 there has never been a US stock market fall in the year after US midterms and the average gain has been more than 15%.4

Near-term caution

Inflation in the US has peaked and is heading lower. However, the Fed has sent a clear message that there is still hard work ahead to reach its objective.

We expect the Fed tightening cycle to continue, with another three rate hikes. This would result in a Fed Funds terminal rate of 5.25%, a level that could be sustained for some time.

Monetary tightening impacts economic and earnings data with a lag. A slowdown is likely coming, though it’s too early to tell its magnitude and resultant impact on the economy and earnings.

Medium-term constructive

We do not rule out a soft landing, meaning that the Fed achieves its objective of slowing inflation without creating a recession in the US economy. This would be an upside surprise for 2023.

Inflation should improve enough to allow the Fed to end its rate tightening cycle and potentially begin to ease. This could be the trigger for a more sustainable rally in risk assets.

Peaks in US inflation and the end of the Fed’s raising of rates have typically coincided with equity market bottoms. 

Asset allocation positioning

We believe we are entering a different investing environment than the one characterized by the past decade, which was dominated by large cap growth and US equities.

We see more fertile ground for diversification across our strategy categories of stability, diversified and growth, including an increased allocation to alternatives, where appropriate.

Download our full commentary below.

[1] Bloomberg LP, 31st December 2022. Past performance is not a guide to future performance, nor a reliable indicator of future results or performance
[2] S&P 500 Index to represent stocks and the Bloomberg Barclays US intermediate one-to-ten-year Treasury index for bonds
[3] Source: Bloomberg LP, January 2023
[4] Source: NDR, November 2022

About the author
  • Nancy Curtin

    Nancy Curtin sits on AlTi’s Board of Directors and is our Global Chief Investment Officer. She is also a member of the firm's Executive Committee. She has held Global CIO, Head of Investments and senior C-suite leadership roles at multiple firms since 2002, including Fortune Asset Management, Close Brothers Asset Management and Alvarium Investments

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