Global economy – most expected growth to slow but remain above trend and inflation to gradually normalize. On balance, forecasts proved overly optimistic as inflation remained stubbornly high and synchronized monetary tightening prevented growth from returning to pre-Covid trend levels.
Equity – consensus was generally bullish, recommending overweight to equities, favoring Non-US over US, and Value over Growth. Only the most pessimistic outlook cited stretched valuations and a guarded outlook. Equities in fact sold off sharply in 2022, Non-US Developed equities outperformed US equities, and Value outperformed Growth by a fairly wide margin.
Fixed Income – most expected rates to rise modestly as central banks would be patient to avoid over-tightening. Some favored investment grade credit and high yield over treasuries as growth would be steady, and defaults would remain low. The Bloomberg US Aggregate Index ended 2022 down double digits while the less duration-sensitive US Corporate High Yield index also declined sharply, but slightly less than Core Bonds.
Risks / Other Factors – the most cited risk was the COVID pandemic that could potentially linger for longer with new variants; other risks included inflation surprising to the upside, an extended slowdown in China, and the ongoing shift toward “net-zero.”
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