

MACRO-ECONOMIC OUTLOOK
“May you live in interesting times” is an English translation of a supposed Chinese curse. But it is apocryphal—there is no proven Chinese source. These certainly are interesting times, though, so we’ll start there, authentic or not.
The economic and market landscapes may be witnessing a “regime shift” at this point in 2023, as we face volatile trends in inflation, earnings, economic growth, Federal Reserve (Fed) policy and geopolitics. Perhaps the most noteworthy factor for the markets to consider is the path for future U.S. monetary policy. With the Fed arguably at, or close to, the end of this rate hike cycle, investors will be confronted by ongoing confusion about how long a “pause” could last. It could ultimately be followed by a debate over the timing and magnitude of potential rate cuts.
As always, we suggest focusing on key market signals, which we define as:
+ Economic growth rates
+ Inflation expectations
+ Monetary policy
+ Interest rates
+ Corporate earnings growth rates
And we provide our thoughts for the remainder of 2023 on:
+ Equities
+ Fixed income
+ Real assets and alternatives
At the time of writing, there are a few “known unknowns” that could affect our perspective. These include:
1. What's next from the Fed? With this rate hike cycle arguably coming to an end, the debate surrounding “rates higher for longer” vs. rate cuts will take center stage, more than likely keeping the volatility quotient elevated.
2. The Russia/Ukraine War. The media is reporting on an upcoming spring counteroffensive by Ukraine. We won’t pretend to have all the answers, but it does seem that this horrible conflict is heading toward an inflection point whereby Ukraine succeeds in fending off Russia and perhaps regains Crimea. Another path could be a negotiated peace settlement in which both sides declare victory and simply stop shooting.
3. Geopolitical challenges between the U.S., China, Russia and Iran. The temperature seems to have cooled across the geopolitical front, as all parties seem to recognize it is in no one’s best interest to heighten tensions. But the issues remain bubbling beneath the surface, including recent saber-rattling by the Chinese military.
Glossary found at end for terms and Index definitions.
The following pages are our views on the signals we can currently observe.
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