Opportunities on the Horizon: Investing Through a Slowing Economy

Overview | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 11 2023’s first half performance for world financial markets should remind investors of the folly of market timing. Despite ample worries to the contrary, global equities have returned 8.0% 2 in the year to date and global bonds 2.0%. 3 Of course, this rebound followed 2022’s abysmal results, the worst combined US stock and bond market performance since 1931. It was a severe reckoning; the price to pay for government actions that overstimulated the economy during and after the COVID shock, then reversing course to tame the resulting inflation. Investment opportunities ahead The double-digit declines in 2022 created stronger investment opportunities than the initial economic recovery of 2020-2021. Though off their highs, US government bond yields have risen three to four percentage points across different points of the yield curve ( FIGURE 1 ) . There’s been a significant rotation out of speculative investments into conservative, income-generating assets. All these developments have improved our long- term strategic asset returns estimates for the decade to come ( FIGURE 2 and 3 ). 2 Source: S&P 500 as of June 2, 2023 3 Source: US Aggregate Bond Index as of June 2, 2023 FIGURE 1 : US Treasury Yields Highest since 2007 0 1 2 3 4 5 6 0 50 100 150 200 250 300 350 400 450 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 '23 Yield (%) Total Return Level MSCI All Country World, USD 7yr US Treasury Yield Source: Bloomberg as of May 4, 2023. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. FIGURE 2 : Sobering: Unprofitable Firms Have Seen an Historically Large Decline 40 90 140 190 240 290 340 Jan-18 Jan-19 Jan-20 Jan-21 Jan-22 Jan-23 Jan 2018 = 100 S&P 500 Info Tech UBS Unprofitable Tech Index Source: Bloomberg as of April 4, 2023. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary.