Black swans in abundance: Unexpected events that can ruin the outlook for 2023.
UK news today: Outlook 2023 updates – Investors are anticipating a new year that differs from the annus horribilis of 2022 in one important respect. According to Robeco’s “short-term pain, long-term gain” perspective, a recession is likely to occur in 2023. Investors should wait until inflation, interest rates, and the strength of the US dollar have peaked before the good times start.
The prevailing consensus isn’t all that optimistic, but history teaches us that nothing is ever certain.
What are the potential outcomes—both positive and negative—that could prevent these main scenarios from happening?
The Robeco Sustainable Multi-Asset Solutions team identifies 10 probable “black swans” as 2023 approaches and what the effects might be.
The Robeco Sustainable Multi-Asset Solutions team identifies 10 probable “black swans” as 2023 approaches and what the repercussions might be.
- Goldilocks’s retaliation
The first is “Goldilocks’ revenge”—the economic mush will be just right—neither too hot nor too cold.
According to Colin Graham, Head of Multi-Asset Strategies at Robeco, “here, US inflation peaks without a recession, the dollar declines, and the US Federal Reserve (Fed) may rest easy yet remain alert.”
“The budgetary expansion after Copid slows, putting a curb on excessive consumption.
As a result, high yield bonds become more alluring to multi-asset investors as default rate estimates decline.
- Panic stations
The Fed might also become weary of its low long-term rates and reconsider its inflation objective, noting a fundamental break from the prior regime, which has mostly been in place since the global financial crisis.
The next recession might push the economy into outright deflation, according to the argument that the 2% target is too close to zero, Graham warns.
“Panic would ensue, and returns on US dollar-denominated bonds would be negative for the third consecutive year.”
- catastrophe brought by by deflation
The possibility of deflation is even worse.
Although dropping costs may seem nice, customers would not buy anything since they would expect prices to drop soon, which would result in a complete recession.