For months now, it seems like all we've encountered are negative headlines. But when we cut through the noise and look at the data, the story for the first half of 2023 was simple: the markets and economy did better than many expected them to.
Will the same hold for the second half of the year? We take a look ahead in our Midyear Outlook.
Expectations Vs. Reality
Despite risks—like the potential U.S. default on its debt—and worries about an impending recession, hiring remained strong, consumers and businesses stayed confident, and the economy grew. Did it grow more slowly than last year? Sure. Still, all market indices were up, corporate earnings beat expectations, and financial conditions remained steady.
And what about inflation? It managed to pull back, as did longer-term interest rates. After raising short-term rates at one of the fastest paces in decades, the Federal Reserve (Fed) adjusted its language in May to suggest a pause may be in order. None of this would have happened had growth remained at last year's level. That slower growth should help support the markets and economy in the second half of the year.
The Road Ahead
While the debt ceiling was resolved without a crisis, the banking system remains under stress. The U.S. relationship with China is rocky, and the war in Ukraine continues. We have nearly as many risks now as we did in January. Add in slower growth, and there's less cushion for the economy and markets to fall back on.
The risks are real, but so are the positives. Inflation is down. The Fed may pause. And the international situation, while worrying, is no more worrying now than it has been for the past year or so. Combined with strong job growth and consumer confidence, we get an economy that looks much like it did at the beginning of the year. And that economy proceeded to outperform. With low expectations, it may well do so again.
For more on our expectations for the U.S. economy and the equity and fixed income markets, read our 2023 Midyear Market and Economic Outlook, available now.
Cutting Through the Noise
The headlines tell one story. But does the data tell another? Download our Midyear Outlook to find out.
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