Markets may continue to face choppiness in 2023 as investors navigate potentially declining earnings and rates that stay high for longer than expected.
However, I believe it’s most likely that the market won’t experience a significant downtrend (or uptrend) for the year, and may instead follow a sideways path.
With interest rates higher than they were a year ago, bonds may provide better support to investors’ portfolios in 2023 than they did in the past year.
“No matter how you slice it, the yield curve is now inverted”
Campbell Harvey’s 1986 dissertation at the University of Chicago linked the difference between longer- and shorter-term interest rates to future U.S. economic growth
Here are the reasons the professor is now citing for why the spread may not be as reliable an indicator of an approaching recession this time around, though it’s clearly pointing in the direction of “lethargic” economic growth:
Unusual employment situation…
Technology-driven layoffs…
Strong consumers and financial institutions…
Inflation-adjusted yields. Harvey focuses on inflation-adjusted yields because they better reflect the real economic outlook. “Once we inflation adjust the yields, the yield curve is not inverted — but it is flat (associated with lower growth but not necessarily a recession),” he said.
