Utility Name

Outlook 2023

See the potential

Weaker growth, stronger markets

Download the Full Report

introduction

Most things that could have gone wrong for investors did in 2022. Markets that entered the year with extended valuations buckled under high inflation, an aggressive global rate hiking cycle, and the war in Ukraine.

Unusually, both stocks and bonds suffered big losses in 2022 — one of the worst years ever for a balanced portfolio.

But here’s the good news. Precisely because markets are so battered, lower equity valuations and higher bond yields, in our view, offer investors the most attractive entry point for a traditional portfolio in over a decade.

In this year’s outlook, we consider key economic and market forces — the consequences of monetary policy tightening, weakness across the global economy, market pricing and valuation resets — and discuss what they might mean for your portfolio.

Policy backdrop

The consequences of
global policy tightening

stock

26

out of the 31 central banks that we track are raising rates

Global wave of
higher rates

Almost in unison, central banks around the world raised rates in 2022 to combat inflation. Of the 31 central banks that we track, 26 raised rates, up from just two at the start of 2021.

Countries raising rates

Start 2021
Map2021

Countries raising rates

End 2022
Map2022

Forceful Fed

The U.S. Federal Reserve launched its most aggressive round of interest rate hikes in 40 years, disrupting global markets. By the end of 2022, U.S. policy rates will likely move above 4% for the first time since 2006. The European Central Bank (ECB) has followed suit, recently raising its policy rate by 0.75%, its biggest hike since 1999.

For the first time since 2006, U.S. policy rates will likely move above

4%

home2
house

30-year U.S. mortgage rates breached 7% for the first time since 2001.

More expensive to borrow

Especially after many years of low rates and loose policy, higher rates and tighter policy make it tougher for consumers and companies to borrow. 30-year U.S. mortgage rates breached 7%, up from ~3.5% at the start of 2022.

The end of global tightening

We think the global tightening cycle will likely come to an end in 2023. Among the signs pointing in that direction: Growth is likely to slow, labor markets will likely soften, and inflation seems set to fall.

Historical evidence suggests that the real economy suffers the greatest damage after interest rates have already risen, but markets may have already reacted to higher rates and their consequences.

Economic Backdrop

Weakness across
the global economy

Growing friction

We expect friction in the global economy to continue to build. A recession in the United States and Europe is more likely than not in 2023.

United States

In the United States, activity in rate-sensitive sectors such as real estate and capital markets has collapsed. Economic weakness will likely broaden. However, restrained consumer and corporate debt and the lack of imbalances in the economy could act as buffers against a severe downturn.

For the first time since 2008, home sales fell by

~20%

Global value of initial public offerings fell by more than

$600b

The percentage of CEOs surveyed who are preparing for a recession is

98%

Europe

In Europe, contraction seems imminent. Reliance on Russian energy poses a risk even though natural gas storage levels seem full. Further ECB rate hikes to battle inflation will inevitably depress growth.

China

In China, the continued fallout from overinvestment in the property sector and strict COVID containment policy will likely continue to restrict economic activity.

The global growth outlook seems bleak. Higher interest rates and geopolitical risks will continue to dampen activity.

As investors, we are most positive on two types of assets—those that can help protect portfolios from a material economic downturn and those whose prices are already close to reflecting that outcome.

Investment implications

Valuation resets

Pessimism priced in

It’s quite an array of challenges for the global economy.

For investors, one question is key: Where are you getting compensated for the risk you are taking? With global equities down 16% and the Global Aggregate Bond Index down 10% year-to-date, market prices have absorbed a good deal of risk already.

Lower valuations, higher yields

Along the way, valuations have declined dramatically. The forward price-to-earnings multiple of large-cap stocks has retreated to long-term averages, while bond yields are at their highest levels in over a decade.

Equity valuations are lower

Bond yields are higher

From a valuation standpoint, we believe there has not been a more attractive entry point for a traditional portfolio of stocks and bonds in over a decade.

Here’s how we assess risks and opportunities across asset classes:

Bonds

Treasury, corporate and municipal bond yields are at their highest levels in a decade, suggesting investors could potentially reach their goals by taking less risk. That’s a notable change.

Stocks

We think equity markets will find some stability in 2023 as higher valuations offset lower earnings growth.

We prefer the U.S. stock market and quality companies. Over the medium term, we see potential opportunity in U.S. small- and mid-cap stocks, where valuations have largely reflected potential damage to earnings.

Alternatives

Anemic public market activity means private market investors can earn a premium for providing both debt and equity financing.

We also see potential investment opportunity in areas critical to stability and security: infrastructure, transportation, natural resources and real estate.

Conclusion

Putting capital to work

2022 tested the resolve of many investors.

But better days are likely ahead. We believe markets could stabilize even as the economy worsens in 2023. The global reset in valuations is presenting investors with a broader range of viable options to help achieve their goals.

Most importantly, we encourage you to focus on your process: Define and revisit financial goals; then design investment portfolios that may provide the highest probabilities of reaching them.

2022 tested the resolve of many investors.

But better days are likely ahead. We believe markets could stabilize even as the economy worsens in 2023. The global reset in valuations is presenting investors with a broader range of viable options to help achieve their goals.

Most importantly, we encourage you to focus on your process: Define and revisit financial goals; then design investment portfolios that provide the highest probabilities of reaching them.

With your financial goals as our guide, we’re here to help you navigate both the uncertainties and the opportunities.

Important Information

This material is for information purposes only, and may inform you of certain products and services offered by J.P. Morgan’s wealth management businesses, part of JPMorgan Chase & Co. (“JPM”). The views and strategies described in the material may not be suitable for all investors and are subject to investment risks. Please read all Important Information.

GENERAL RISKS & CONSIDERATIONS

Any views, strategies or products discussed in this material may not be appropriate for all individuals and are subject to risks. Investors may get back less than they invested, and past performance is not a reliable indicator of future results. Asset allocation/diversification does not guarantee a profit or protect against loss. Nothing in this material should be relied upon in isolation for the purpose of making an investment decision. You are urged to consider carefully whether the services, products, asset classes (e.g., equities, fixed income, alternative investments, commodities, etc.) or strategies discussed are suitable to your needs. You must also consider the objectives, risks, charges, and expenses associated with an investment service, product or strategy prior to making an investment decision. For this and more complete information, including discussion of your goals/situation, contact your J.P. Morgan representative.

In general, the bond market is volatile and bond prices rise when interest rates fall and vice versa. Longer term securities are more prone to price fluctuation than shorter term securities. Any fixed income security sold or redeemed prior to maturity may be subject to substantial gain or loss. Dependable income is subject to the credit risk of the issuer of the bond. If an issuer defaults no future income payments will be made.

The price of equity securities may rise or fall due to the changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Equity securities are subject to 'stock market risk' meaning that stock prices in general may decline over short or extended periods of time.

International investments may not be suitable for all investors. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Some overseas markets may not be as politically and economically stable as the United States and other nations. Investments in international markets can be more volatile.

NON-RELIANCE

Certain information contained in this material is believed to be reliable; however, JPM does not represent or warrant its accuracy, reliability or completeness, or accept any liability for any loss or damage (whether direct or indirect) arising out of the use of all or any part of this material. No representation or warranty should be made with regard to any computations, graphs, tables, diagrams or commentary in this material, which are provided for illustration/reference purposes only. The views, opinions, estimates and strategies expressed in this material constitute our judgment based on current market conditions and are subject to change without notice. JPM assumes no duty to update any information in this material in the event that such information changes. Views, opinions, estimates and strategies expressed herein may differ from those expressed by other areas of JPM, views expressed for other purposes or in other contexts, and this material should not be regarded as a research report. Any projected results and risks are based solely on hypothetical examples cited, and actual results and risks will vary depending on specific circumstances. Forward-looking statements should not be considered as guarantees or predictions of future events.

Nothing in this document shall be construed as giving rise to any duty of care owed to, or advisory relationship with, you or any third party. Nothing in this document shall be regarded as an offer, solicitation, recommendation or advice (whether financial, accounting, legal, tax or other) given by J.P. Morgan and/or its officers or employees, irrespective of whether or not such communication was given at your request. J.P. Morgan and its affiliates and employees do not provide tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any financial transactions.

LEGAL ENTITY AND REGULATORY INFORMATION

J.P. Morgan Wealth Management is a business of JPMorgan Chase & Co., which offers investment products and services through J.P. Morgan Securities LLC (JPMS), a registered broker-dealer and investment advisor, member FINRA and SIPC. Insurance products are made available through Chase Insurance Agency ,Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. Certain custody and other services are provided by JPMorgan Chase Bank, N.A. (JPMCB). JPMS, CIA and JPMCB are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states.

Bank deposit accounts and related services, such as checking, savings and bank lending, are offered by JPMorgan Chase Bank, N.A. Member FDIC.

This document may provide information about the brokerage and investment advisory services provided by J.P. Morgan Securities LLC (JPMS). The agreements entered into with JPMS, and corresponding disclosures provided with respect to the different products and services provided by JPMS (including our Form ADV disclosure brochure, if and when applicable), contain important information about the capacity in which we will be acting. You should read them all carefully. We encourage clients to speak to their JPMS representative regarding the nature of the products and services and to ask any questions they may have about the difference between brokerage and investment advisory services, including the obligation to disclose conflicts of interests and to act in the best interests of our clients.

J.P. Morgan may hold a position for itself or our other clients which may not be consistent with the information, opinions, estimates, investment strategies or views expressed in this document. JPMorgan Chase & Co. or its affiliates may hold a position or act as market maker in the financial instruments of any issuer discussed herein or act as an underwriter, placement agent, advisor or lender to such issuer.

© 2022 JPMorgan Chase & Co. All rights reserved.

LEARN MORE About Our Firm and Investment Professionals Through FINRA Brokercheck

To learn more about J.P. Morgan’s investment business, including our accounts, products and services, as well as our relationship with you, please review our J.P. Morgan Securities LLC Form CRS and Guide to Investment Services and Brokerage Products

 

JPMorgan Chase Bank, N.A. and its affiliates (collectively "JPMCB") offer investment products, which may include bank-managed accounts and custody, as part of its trust and fiduciary services. Other investment products and services, such as brokerage and advisory accounts, are offered through J.P. Morgan Securities LLC ("JPMS"), a member of FINRA and SIPC. Annuities are made available through Chase Insurance Agency, Inc. (CIA), a licensed insurance agency, doing business as Chase Insurance Agency Services, Inc. in Florida. JPMCB, JPMS and CIA are affiliated companies under the common control of JPMorgan Chase & Co. Products not available in all states. Please read the Legal Disclaimer in conjunction with these pages.

INVESTMENT AND INSURANCE PRODUCTS ARE: • NOT FDIC INSURED • NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY • NOT A DEPOSIT OR OTHER OBLIGATION OF, OR GUARANTEED BY, JPMORGAN CHASE BANK, N.A. OR ANY OF ITS AFFILIATES • SUBJECT TO INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED

Equal Housing Lender Icon Bank deposit products, such as checking, savings and bank lending and related services are offered by JPMorgan Chase Bank, N.A. Member FDIC. Not a commitment to lend. All extensions of credit are subject to credit approval.