The Bull and Bear Case for 2023
The bears have a lot of evidence they need to make their calls for a U.S. recession. Rate hikes have consequences after all. The failure of Silicon Valley Bank and Signature Bank may not have led to a crisis of confidence, but the problems for bank profitability and credit availability may just be getting started. Small businesses are already reporting that credit is harder to find, the office real estate sector will likely have a material distress cycle, given higher interest and vacancy rates, and continuing jobless claims are starting to signal cracks in the labor market.
The bulls still have a decent case to make. Wage inflation seems well on its way to normalization without any rise in the unemployment rate, which seems to settle one of the key macroeconomic debates of the last 18 months. Even though strains are starting in the office sector, the residential housing market is showing tentative signs of turning a corner. Housing market sentiment and home sales are tentatively perking up.
What we have learned so far this year is that 2022’s environment of boiling inflation and aggressive interest rate hikes is in the rearview mirror.
Our take is that it still seems like a recession is more likely than not, but a softer landing is possible. We will be watching closely for signs that the credit crunch from March is having a sustained negative impact through the spring.
Takeaways
The hardest part about 2022 was that barely any investments worked.
What we have learned so far this year is that 2022’s environment of boiling inflation and aggressive interest rate hikes is in the rearview mirror.
The debate between bulls and bears will continue, but investors should take comfort in the idea that assets are doing what they need them to do to achieve long-term success. Equities drive long-term growth. Bonds provide stability and security. Alternatives allow for the potential to outperform public markets and access unique opportunities.
Rick Barragan is the Managing Director, Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
