Russell Investments’ 2023 global market outlook: Strategists expect a shift from darkness to dawn in 2023 outlook

Team sees global economic recovery on the horizon and a comeback for diversified portfolios

SEATTLE, December 6, 2022 —  Russell Investments’ strategists believe a recession seems likely in 2023 and equity markets may struggle, but a global economic recovery should be on the horizon by year-end.

“The main issue for 2023 is whether inflation pressures ease sufficiently to allow central banks to step away from rate hikes and potentially begin easing,” said Andrew Pease, global head of investment strategy at Russell Investments. “We expect inflation will be on a downward trend as global demand slows. This should allow central banks to eventually change direction and may set the scene for the next economic upswing.”

Pease added that he expects the next U.S. recession will be relatively mild, particularly because household and corporate balance sheets are in good shape. Aside from inflation, he doesn’t see any significant obvious economic imbalances.

“It’s reasonable to expect that a recession in 2023 will see GDP decline less and unemployment rise by less than the average for modern recessions,” Pease said.

Russell Investments’ key asset-class views for 2023 include:

  • Fixed income will make a comeback after experiencing the worst year of returns in 2022.
  • Long-term bond yields should decline moderately as recession risk looms. The team’s target is 3.3% for the U.S. 10-year Treasury yield by the end of 2023.
  • Equities have limited upside with recession risk on the horizon.
  • The U.S. dollar could weaken late in 2023 as central banks start to unwind rate hikes and investors begin to focus on a global recovery.
  • A weakening U.S. dollar could be the trigger for non-U.S. developed market equities to finally outperform U.S. stocks, given their more cyclical nature and relative valuation advantage over U.S. stocks. A weaker U.S. dollar could also be the trigger for emerging markets to outperform.

“Overall, 2023 is likely to be the year of the diversified portfolio, where a traditional balanced portfolio of 60% equities and 40% fixed income does well,” Pease said.

At year-end 2022, Russell Investments’ cycle, value, and sentiment investment decision-making process points to an uncertain global equity market outlook. The team’s conclusion for equities is that the cycle is poor but may improve, value is expensive to at best fair value, and sentiment is still supportive.

Meanwhile, the team’s process concludes that government bonds are attractive, as the cycle turns supportive with inflation set to decline and central banks slowing the pace of tightening and potentially going on pause in early 2023. In addition, value has turned positive after rises in yields this year and sentiment is also supportive.

The firm’s strategists summarize their current asset-class preferences as follows:

  • Although non-U.S. developed equities are cheaper than U.S. equities, the team has a neutral preference until the Fed become less hawkish and the U.S. dollar weakens.
  • Emerging market equities could recover if there is significant China stimulus, the Fed slows the pace of tightening, energy prices subside, and the U.S. dollar weakens. For now, the team believes a neutral stance is warranted.
  • High yield and investment grade credit spreads are near their long-term averages, although the overall yield on U.S. high yield at near 8.5% is attractive. Spreads will come under upward pressure if U.S. recession probabilities increase and there are fears of rising defaults. The team has a neutral outlook on credit markets.
  • Government bond valuations have improved after the rise in yields, and the team sees U.S., U.K., and German bonds as offering good value and Japanese government bonds offering fair value. “The risk of a further significant sell-off seems limited given inflation is close to peaking and markets have priced hawkish outlooks for most central banks,” Pease said.
  • Real assets: Real-estate investment trusts look attractively valued relative to global equities and listed infrastructure, and the team believes they should benefit from declining bond yields. The team sees the outlook for commodities as mixed, given the expected slowdown in the global economy. “The energy market outlook is complex, given recessions will reduce oil demand, but the supply side may tighten if more restrictions are placed on Russian oil exports,” Pease said.
  • The U.S. dollar (USD) has made gains this year on Fed hawkishness and safe-haven appeal during the Russia/Ukraine conflict. The team believes USD could weaken if inflation begins to decline and the Fed pivots to a less hawkish stance in early 2023. The team believes the euro and Japanese yen would be the main beneficiaries.

For more information, please see the team’s 2023 Global Market Outlook.


About Russell Investments

Russell Investments is a leading global investment solutions firm providing a wide range of investment capabilities to institutional investors, financial intermediaries, and individual investors around the world. Building on an 86-year legacy of continuous innovation to deliver exceptional value to clients, Russell Investments works every day to improve the financial security of its clients. The firm has $274.3 billion in assets under management (as of 9/30/2022) for clients in 32 countries. Headquartered in Seattle, Washington, Russell Investments has offices in 19 cities around the world, including in New York, London, Toronto, Tokyo, and Shanghai.

Contact: Steve Claiborne, 206-505-1858,