In the first half of 2023, investors faced aggressive US Federal Reserve (Fed) monetary policy tightening, consecutive quarters of falling corporate profits, two of the largest bank failures in US history, a near-default by the US federal government, and universal predictions of US and global recessions.
With these issues in mind, I moderated a panel of our leading economists including John Bellows, Portfolio Manager, Western Asset; Sonal Desai, Chief Investment Officer, Franklin Templeton Fixed Income; Michael Hasenstab, Chief Investment Officer, Templeton Global Macro; and Francis Scotland, Director of Global Macro Research, Brandywine Global. The key question I wanted to address: What’s in store for investors in the second half of 2023?
Below are my key takeaways from the discussion.
- Inflation will continue to be an issue for the next 6–12 months.
- While inflation is coming down in many countries, the global economic recovery is uneven.
- China is struggling to find sources of economic growth.
- Supply-chain rebuilding and friend-shoring should contribute to growth opportunities in some countries.
- Japan benefited from recent increases in inflation after struggling with low economic growth for decades.
- The upcoming economic data will likely provide further evidence of slowing growth and ongoing disinflation in the US.
- Real interest rates are expected to continue increasing.
- New investment opportunities.
- Fixed income investments are resuming status as good portfolio diversifiers.
- Selectively increasing duration offers an attractive total return.
- High-yield debt is priced attractively as investors remain cautious about the economy.
- Emerging markets can provide diversification.
Stephen Dover, CFA
Chief Market Strategist
Franklin Templeton Institute
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