Creating forecasts in a world that regularly surprises remains humbling. March of 2020 brought COVID, while February of 2022 had Russia unexpectedly invading Ukraine. And March 2023 saw unanticipated—though perfectly logical—stressors on regional and local banks in the US. In our 2023 Mid-Year Capital Markets Forecast, we revisit persistent though declining inflation, the aggressive monetary policy taking on those rising prices, and the surprisingly resilient though likely slowing economic growth in the US and around the world.
While the failure of a small number of regional banks in the first half of 2023 was meaningful in a highly localized way, it does not appear to represent a harbinger of financial dislocations to come. Our team explored the topic in some depth back in April, in Banks: Moving Forward, and while stock prices of many publicly traded regional banks are (rightly or wrongly) 30-40% off their previous highs, we do not anticipate this situation evolving into a widening banking or financial crisis.
As we move into the second half of 2023, we expect that rhetoric and recriminations in the public square will only intensify due to an increasingly hostile domestic and international political climate. In the face of anticipated hyperbole and disagreements about the veracity of even basic information, we continue our long-standing practice of gathering data objectively from numerous sources, considering a wide range of perspectives and analytic frameworks, and positioning portfolios for long-term success despite near-term uncertainties.