For months we seem to have only encountered negative headlines. But if we break the clutter and take a look at the data, the story for the first half of 2023 is simple: Markets and the economy fared better than many expected.
Will that remain so in the second half of the year? We provide an outlook in our half-year outlook.
Expectations vs. Reality
Despite risks – such as a possible US default – and fears of a looming recession, hiring remained strong, consumers and businesses remained optimistic and the economy grew. Has it grown slower than last year? Secure. Still, all market indices were up, corporate earnings beat expectations and financial conditions remained stable.
And what about inflation? It managed a decline, as did longer-term interest rates. After raising short-term interest rates at one of the fastest paces in decades, the Federal Reserve (Fed) adjusted language in May to suggest a pause might be in order. None of this would have happened if growth had remained at the previous year’s level. This slower growth should help support markets and the economy in the second half of the year.
Along the road
Although the debt ceiling was resolved without a crisis, the banking system remains under pressure. The relationship between the USA and China is difficult and the war in Ukraine continues. We now have almost as many risks as in January. Add to that slower growth and the economy and markets have less room to fall back on.
The risks are real, but so are the positives. Inflation has gone down. The Fed could take a break. And the international situation, while worrying, is no more worrying now than it has been for the last year or so. Combined with strong job growth and consumer confidence, we get an economy that looks much like it did at the start of the year. And this economy continued to outperform. With low expectations, this could well be the case again.
For more information on our expectations for the US economy, equity and bond markets, please see our Mid-2023 Market and Economic Outlook, available now.
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Cut through the noise
The headlines tell a story. But does the data say otherwise? Download our half-year outlook to find out.
