Market beats

After 2022’s financial market performance, one would be forgiven for thinking “2023 can’t be worse?” But the difficult to accept reality is that markets are likely to remain under pressure well into 2023. That said, unlike 2022’s “batten-down the hatches” asset allocation strategy, we expect that in the 6–12-month outlook, there will be select asset classes that tactically outperform at different points due to the evolving business cycle and changing monetary policy landscape. This presents a challenge for investors but also ample opportunities to add value.

Bonds may have an edge over equities in the near-term due to their downside mitigation during growth slowdowns, while equities may outperform strongly in the latter part of 2023 and into 2024 if/and when economies rebound on the other side of recession.

Regionally, we prefer US equity to developed international and emerging markets primarily due to the higher (albeit still low) likelihood of an engineered soft landing, which would boost US equity disproportionally. The outlook suggests staying defensive on a sector and factor basis, preferring healthcare and consumer staples, and quality and low volatility, respectively. We also continue to favor higher income and value equities for their lower exposure to re-rating risk and wide multiples spread to growth.

Shamik Dhar, chief economist, BNY Mellon Investment Management

Acronyms

GEIA – Global Economic Investment Analysis
HY – High Yield
IG- Investment Grade
EM – Emerging Market
DM – Developed Market
UST – United States Trillions
IMF – International Monetary Fund

Disclosures

All investments involve risk, including the possible loss of principal. Certain investments involve greater or unique risks that should be considered along with the objectives, fees, and expenses before investing.

The assets listed should not be considered recommendations to buy or sell a security.

Recent market risks include pandemic risks related to COVID-19. The effects of COVID-19 have contributed to increased volatility in global markets and will likely affect certain countries, companies, industries and market sectors more dramatically than others.

This material has been provided for informational purposes only and should not be construed as investment advice or a recommendation of any particular investment product, strategy, investment manager or account arrangement, and should not serve as a primary basis for investment decisions. Prospective investors should consult a legal, tax or financial professional in order to determine whether any investment product, strategy or service is appropriate for their particular circumstances. Views expressed are those of the author stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change.

This information may contain projections or other forward-looking statements regarding future events, targets or expectations, and is only current as of the date indicated. There is no assurance that such events or expectations will be achieved, and actual results may be significantly different from that shown here.

The information is based on current market conditions, which will fluctuate and may be superseded by subsequent market events or for other reasons. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission.

BNY Mellon Investment Management is one of the world’s leading investment management organizations, encompassing BNY Mellon’s affiliated investment management firms, and global distribution companies. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and may also be used as a generic term to reference the Corporation as a whole or its various subsidiaries generally.

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