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Markets and Economy

2023 First Quarter Economic & Market Outlook

By Jason Herried, Ron Alberts • January 12, 2023

2 minute read time

A cloudy outlook with a silver lining 

2022 is a year investors hope will not repeat anytime soon. The turmoil of 2022 followed 2021’s economic reopening and easy money—with big gains for stock investors. By contrast, 2022 was a year of inflation, rising interest rates, war, and big losses for both stock and bond investors.

We don’t think that 2023 will be a repeat of 2022, but it won’t be easy street either. A cloudy outlook for growth and inflation will likely keep volatility high, but there is a silver lining as we expect the outlook to be much clearer by the end of the year. And financial markets like clarity.

Looking ahead, we expect economic growth to slowly grind lower through at least mid-year as the economy normalizes after the pandemic reopening boom and the lagged effects of higher interest rates make themselves felt by weighing down demand. We expect inflation to ease as the year progresses and we may even see the Federal Reserve cut rates by the end of the year.

An environment of slow growth and perhaps recession combined with slowing inflation tends to be good for bonds as interest rates typically decline, pushing bond prices higher. Declining interest rates are often good for stock valuations as well. However, if earnings estimates prove to be too optimistic due to recession, stocks may struggle to record gains.

While the near-term outlook is cloudy, the long-term outlook has improved significantly over the past year. Compared to a year ago, long-term expected returns are notably higher for both stocks and bonds. The punchline is that the 10 to 15-year expected annual return for a balanced portfolio is about 8% compared to 5% a year ago, which provides long-term investors with reason to remain patient as near-term issues resolve.

Q1 2023 Outlook

Download the report or listen in as Ron Alberts and Jason Herried take you through a quick outlook for the first quarter of 2023.

This information is for educational and illustrative purposes only and should not be used or construed as financial advice, an offer to sell, a solicitation, an offer to buy or a recommendation for any security. Opinions expressed herein are as of the date of this report and do not necessarily represent the views of Johnson Financial Group and/or its affiliates. Johnson Financial Group and/or its affiliates may issue reports or have opinions that are inconsistent with this report. Johnson Financial Group and/or its affiliates do not warrant the accuracy or completeness of information contained herein. Such information is subject to change without notice and is not intended to influence your investment decisions. Johnson Financial Group and/or its affiliates do not provide legal or tax advice to clients. You should review your particular circumstances with your independent legal and tax advisors. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared. Past performance is no guarantee of future results. All performance data, while deemed obtained from reliable sources, are not guaranteed for accuracy. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Asset allocation and diversification do not assure or guarantee better performance and cannot eliminate the risk of investment losses. Certain investments, like real estate, equity investments and fixed income securities, carry a certain degree of risk and may not be suitable for all investors. An investor could lose all or a substantial amount of his or her investment. Johnson Financial Group is the parent company of Johnson Bank, Johnson Wealth Inc. and Johnson Insurance Services LLC. NOT FDIC INSURED * NO BANK GUARANTEE * MAY LOSE VALUE