Labor Market

The crucial question for 2023 is: will the US and UK Beveridge Curves shift back inwards to their pre-pandemic versions, ushering in a soft landing? Or, will we slide down the new post-pandemic Beveridge Curves into recession? Plus: we reveal the most important chart for Europe and the most important chart for China in early 2023.

This week we present our Portfolio Allocation Summary for January 2023.

Relative to beaten-down expectations, global growth will surprise on the upside in 2023. Investors should overweight equities for now but look to turn more defensive in the second half of the year.

This week we present our outlook for the Fed in 2023.

Investors were heartened by the November CPI report, but the Fed said not so fast. Although it snuffed out the latest mini-rally, ongoing disinflation will set the stage for another one early next year.

Both the US and China have structural imbalances that need correcting. The former has a structurally imbalanced labour market in which demand far outstrips supply. The latter has a massively overvalued housing market. The concurrent correction of these two structural imbalances in the world’s two largest economies will necessitate a sharp slowdown in global growth, and leads to several investment conclusions.

In this <i>Strategy Outlook</i>, we present the major investment themes and views we see playing out next year and beyond.

The pandemic gave older Americans and Brits a massive carrot and stick to retire early. The carrot being a surge in wealth, the stick being a risk to health. In other major economies, the carrots and sticks were smaller or non-existent. Hence, the shortage of older workers, and the resulting wage inflation, is a specific US and UK problem. We go through the important economic and investment implications for 2023.

Investors should maintain a conservative and defensive strategy until recession risks are clearly reduced.