Whilst 2022 has been a challenging year for equity markets, we are more optimistic about the year ahead. 2023 will probably be a difficult year from an economic perspective, with developed economies most likely falling into a relatively mild recession as a result of tighter monetary policy and the loss of household purchasing power. Crucially, however, with economists already assigning a greater than 40% probability to a US recession in the next 12 months, this would be the most widely anticipated recession on record. We believe equity markets may have already largely priced in a moderate recession at the recent lows. The potential for substantial further downside beyond that already seen in 2022 therefore seems more limited. As such, the risk-reward for equities in 2023 appears to have improved compared with the start of this year.

The most widely anticipated recession in history?

%, probability of a recession in the next 12 months