What developments does the expert who oversees a $500 billion portfolio expect in 2023 and the next 10 years?

Nothing is ever repeated in the market. At most, some scenarios may be similar. But now a well-known investment strategist warns that nothing may ever be the same!

Jurrien Timmer, Director of Global Macro at Fidelity Investments links history and current economic trends to see where markets are headed. Although stocks are much cheaper today than a year ago, he fears that American investors are still too optimistic about the prospects for the economy and corporate profits. And now, in a recent interview, he described his concerns and predictions for 2023.

First up, of course, was the issue of the recession and its eventual course.

"The arrival of a recession seems obvious here, because the Treasury yield curve is the most inverted in 40 years and the Federal Reserve intends to raise interest rates above 5%. Every time the Fed has gotten that far into the restrictive range - two to three percentage points above the neutral rate at which the economy is theoretically in equilibrium - there has been a recession.

The picture is muddled by the fact that, while the United States is likely entering a recession, China is finally coming out of its lockdown. Three years of pent-up demand for consumer spending is easing. China won't be able to prevent a U.S. recession, but it could prevent an earnings recession because much of the S&P 500's revenue and profits come from abroad," Timmer says.

The index is moving lower than it was about a year ago

He also looked at why other (particularly Europe) geographies are doing better than the U.S. this year.

"The performance so far has been partly due to the decline in the value of the dollar and partly because there has already been a big drop in earnings in emerging and foreign markets. Relative valuations are compelling, but the big performance moments are due to relative earnings. The relative gains situation is improving for foreign stocks, with China climbing out of a deep bottom while the US is coming out on top. US corporate earnings growth was 50% in 2021. It fell to zero in 2022 and is likely to decline this year, while the opposite is true in China and emerging markets," he says.

I also addressed this topic in a recent summary. It doesn't happen often, but European markets have the potential to make a mockery of the US this year. Will Europe be a better choice for investment this year?

And now the big question - what's next?

"If the era of low interest rates is over, it may mean that the secular trend has shifted from the large-cap growth stocks that dominated from 2014 to 2021 to "everything else" - such as value stocks, small-cap stocks, commodities and international stocks. This also happened during the original Nifty 50 era in the early 1970s and again during the tech boom in the late 1990s.

There are market cycles of four to five years, but there are also secular trends or supercycles lasting decades. We have seen growth stocks pass the baton to the rest of the market."

And what will the next cycles look like?

During the period of great moderation from the late 1990s until recently, we had a period of low interest rates, low inflation and low volatility. The cycle has been smoothed out by globalisation and inflation has been tamed.

The cycle will return towards a typical four-year economic cycle. The Fed will play a larger role than in the past. The market will be more volatile than what investors are used to, and this speaks to the need for greater diversification.

Until recently, we have been in a period of long moderate rates. Source

How about some interesting statistics?

We've gone through a huge reset - the P/E of the S&P 500 has dropped from 30 to 18. For Gen Z investors who are starting to think about the future, this is a huge opportunity. For retirees in the withdrawal phase, 2022 was truly hell for their portfolio. Stocks and bonds went down the tubes. The good news is that it came after many years of above-average returns.

Disclaimer: This is in no way an investment recommendation. This is purely my summary and analysis based on data from the internet and other sources. Investing in the financial markets is risky and everyone should invest based on their own decisions. I am just an amateur sharing my opinions.

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