Making a Case for an Optimistic Market and Economic Outlook

Key Takeaways

  • Mild recession expected in second half of 2023
  • 10-year Treasury yields are headed lower
  • Equity markets perform well after the Fed’s final rate hike

Start me up! This iconic Rolling Stones song keeps racing through our minds as we glance across the investing landscape. Why? Because it feels like the drivers of this turbulent market – Federal Reserve (Fed) tightening, inflation, recession worries, geopolitical fears – will never stop. They seem to have more staying power than Stones lead singer Mick Jagger (who turns 80 in July). After last year’s volatile markets and the scare from the recent banking crisis, investors are seeking some emotional rescue. But time is on our side. We believe that we are nearing the end of the equity bear market, peak yields, and Fed hawkishness. This should be welcome news for investors, particularly as we expect the current volatility to lead to robust performance for most asset classes over the long term. We reach into the Stones’ impressive song list to make the case for our more optimistic market and economic outlook.

    • ‘Wild Horses’ of consumer spending are tiring | The U.S. economy remains resilient, supported by consumer spending which continues to expand at a healthy clip. But three factors – dwindling excess savings, higher interest rates and softening job creation – suggest consumption should start to slow. While over 1 million new jobs have been added this year, economic undertones suggest that employment gains are starting to fade. For example, withholding tax collections (one of our favorite indicators) are slowing, tech companies (i.e., Amazon, Meta, Google) are shedding employees, layoff announcements are broadening (i.e., GM, Walmart, Disney) and job openings are easing. In fact, higher unemployment and slower consumer spending are key reasons why our economist expects a mild recession this year.