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Outlook 2023 – Caution: Heavy Fog

Outlook 2023 – Caution: Heavy Fog

To say 2022 was a tumultuous year is an understatement. Equity markets dropped precipitously, interest rates rose at the fastest pace in decades and commodity prices gyrated in response to high inflation and geopolitical tensions. Clients’ portfolios experienced more volatility than usual because equities and bonds declined at the same time—a rare occurrence that has been observed only 2% of the time since 1926.

We expect this year to be less turbulent for markets, with inflation moderating and major central banks approaching the end of their tightening cycles. Yet there is still a fog of uncertainty facing investors. Will the US enter a recession or avoid it? How will the Russia-Ukraine war evolve? What are the implications of China’s abandonment of its “zero-COVID” policy?

Today, many leading indicators are pointing in opposite directions, and we believe it is important to convey this uncertainty to our clients unequivocally. Nonetheless, our analysis shows that our two key investment themes remain valid: US Preeminence and Staying Invested. In this uncertain environment, we recommend our clients’ portfolios be positioned at their customized strategic asset allocation, where they are designed to ride out volatility and provide staying power in the event of geopolitical disruptions.

In Section I of this report, we provide the rationale for assigning a 45−55% probability to the risk of a US recession in 2023. We evaluate the key arguments in favor of and against a US recession, and note that although a recession is possible, it is not inevitable. We explain why staying invested in such an uncertain environment is our recommended course of action for our clients. We spell out our one- and five-year expected returns and review our tactical tilts coming into 2023. We conclude Section I with the key risks to our outlook beyond the recession risks, primarily focused on geopolitical flare-ups and possible new COVID-19 waves originating from China.

In Section II, we provide a detailed review of our economic outlook for key developed and emerging market countries. Section III details our financial market outlook for these countries.

We invite you to read our views and investment recommendations in our 2023 Outlook report, Caution: Heavy Fog.


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This material represents the views of the Investment Strategy Group (ISG) in the Consumer and Wealth Management Division of Goldman Sachs and is not a product of Goldman Sachs Global Investment Research (GIR). It is not research and is not intended as such. The views and opinions expressed by ISG may differ from those expressed by GIR, Goldman Sachs Asset Management, LP, or other departments or divisions of Goldman Sachs.  Past performance is not indicative of future results which may vary.

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