A bevy of black swans: Surprises that could derail the 2023 outlook

  • On January 12, 2023
  • By GrowthInvest Marketing

Investors are looking forward to a new year that has one redeeming quality – it doesn’t mirror the annus horribilis of 2022.

Robeco’s outlook for ‘short-term pain, long-term gain’ warns that 2023 is likely to see recession, and that investors need to wait for inflation, interest rates and US dollar strength all to peak before the good times resume.

The current consensus isn’t that rosy, but if history tells us anything, it’s that nothing is ever set in stone. So, what are the possible events  – good and bad – that could derail these central scenarios?

As we enter 2023, the Robeco Sustainable Multi-Asset Solutions team outlines 10 potential black swans, and what the consequences may be.

1.            Goldilocks revenge

The first is ‘Goldilocks’ revenge’ – the economic porridge won’t be too hot or too cold but just right. “Here, US inflation peaks without a recession, the dollar drops, and the US Federal Reserve (Fed) can rest easy but remain vigilant,” says Colin Graham, Head of Multi-Asset Strategies at Robeco.

“The post-Covid fiscal expansion slows, acting as the brake on excess demand. The result for multi-asset investors is that high yield bonds become very attractive as default rate expectations fall.”

2.            Panic stations

Alternatively, the Fed could tire of low long-term rates and review its inflation target, citing a structural break with the previous regime that had largely been in place since the global financial crisis.

“It could claim that the 2% target is far too close to zero, saying the next recession could tip the economy into outright deflation,” Graham says. “The result would be panic, and bonds denominated in US dollars would see negative returns for the third year in a row.”

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