December 2022 / MARKET OUTLOOK
Global Market Outlook 2023
The Need for Agility
After more than a decade of relatively benign markets, the investment environment rapidly changed in 2022 as historically high inflationary pressures forced global central banks to aggressively raise interest rates.
With expectations of a prolonged period of higher inflation and elevated rates, T. Rowe Price CIOs Andrew McCormick, Sébastien Page, and Justin Thomson discuss the key implications of ‘regime change’ in the 2023 Global Market Outlook.
Agility is set to be paramount in the year ahead, as uncertainty lingers over the severity of the coming slowdown. With the era of cheap money and multiple expansion likely to be over, the CIOs believe investors must be willing to be selectively contrarian when looking to exploit opportunities across the major asset classes.
Explore our four themes:
Navigating the economic balancing act
The outlook for inflation and interest rates will remain critical in 2023, as investors try to estimate where rates will peak and when the Fed might ‘pivot’ towards monetary easing.
US consumer inflation slowed in late 2022, thanks to a partial unwinding of the oil and other commodity price spikes seen earlier in the year. But inflation in the services sectors remained ‘sticky’, as tight labour markets continued to push wage costs up at a relatively rapid clip.
Expect a change in equity leadership
Soaring bond yields largely drove equity bear markets in 2022 by compressing valuation multiples. But in 2023, earnings growth could move to the top of the list of investor concerns.
As of the end of November, forward consensus estimates predicted mid‑single‑digit growth in earnings per share (EPS) for the US and Japan over the following 12 months, and even slower EPS growth in Europe and emerging markets. Those estimates appear overly optimistic, as past US recessions typically have resulted in 15% to 20% earnings declines for the S&P 500 Index.
Threats and opportunities as yield returns
A brutal year for bond markets in 2022 ended with a silver lining for investors – it raised fixed income yields to some of the most attractive levels seen since the global financial crisis. Higher yields were mirrored in greatly improved valuations for both sovereigns and private credits, with many sectors selling close to or below 15‑year historical medians, as of late November. Higher‑quality credits in the mortgage backed and asset‑backed sectors are also attracting inflows from investors looking to put cash to work or extend duration.
Reports of globalisation’s death greatly exaggerated
Geopolitical tensions and supply disruptions have led some analysts to question whether an era of economic integration has ended, dimming prospects for productivity and growth. But that risk appears to have been exaggerated.
Globalisation is not dead. It may not even be dying. Economically, globalisation has been defined by the five-fold rise in international trade as a percentage of world GDP since the early 1950s. While this ratio has stopped rising, it is also not falling.
Read our full 2023 Global Market Outlook (PDF)
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Justin Thomson is the head of International Equity. Justin is a member of the Management Committee and the chairman of the International Equity Steering Committee. He is a member of the Asset Allocation and ESG Committees. He also is the chief investment officer for International Equities. He is a vice president of T. Rowe Price Group, Inc., and T. Rowe Price International Ltd.
Sébastien Page is head of Global Multi-Asset and chief investment officer. He is a member of the Asset Allocation Committee, which is responsible for tactical investment decisions across asset allocation portfolios. Sébastien also is a member of the Management Committee of T. Rowe Price Group, Inc.
