TAM CIO Multi Asset Outlook: It’s always darkest before the dawn

by | Jan 5, 2023

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Written by James Penny, chief investment officer at TAM Asset Management

It’s no secret that many portfolio managers kicked back their 2023 outlooks for as long as they could. Some seasoned advisers might chalk this up to investment procrastination which the industry is famous for but alas, in this instance, it’s more to do with the velocity of change in headlines and the markets’ sequential and often volatile reaction to that change. 

Bond markets have been truly unprecedented in the scale of their losses. Last year will go down as one of the worst years for clients invested into “protected” portfolios of government and high-quality corporate bonds. Sadly, the 2022 losses in bonds are arguably a simple reversal of the gains these clients saw from the huge rally in government bonds since 2008. While that is no comfort for many clients now facing a difficult retirement picture, to them I would say: this market will come back. 

Looking back at equities, much like the bond market, 2022 was a story of what goes up must come down, and often with a bump. Diversification as a portfolio strategy was still not too much of a concern for many portfolios in Q1 of last year and many managers seemingly still owned huge piles of growth stocks walking into that initial bear market.


We have always maintained that “diversification” isn’t just for bear markets, it deserves to be held across all market cycles – through thick and thin. Why? Because trying to diversify one’s portfolio in the middle of a bear market can be a thankless task because the horse has, on average, already bolted. Sadly, it can take a full bear market like this to be an uncomfortable reminder that high risk, high concentration portfolios go down as well as up! 

What does 2023 hold for markets?

Medicine first; corporate earnings are still too optimistic. We anticipate Q4 company earnings to begin showing a more negative set of corporate growth numbers and forecast earnings for 2023 to be lower from here. This scenario usually spells more negativity for markets in the short term, so it’s not quite time to call an end to volatility just yet. 


Another risk is the potential for inflation to remain stickier than many think, resulting in central bankers having to keep interest rates higher for longer. Predominantly, the longer they stay high, the more chance of an economic contraction. We see global GDP contractions continuing in the UK and Europe, and potentially in the US, over most of 2023, and this appears to be the consensus of the market right now. 

Longer term this picture clouds as fears intensify that inflation will need to be controlled, and if the economy is strong then that’s only more impetus for central banks to keep raising rates until they break inflation. History tells us this is where recessions occur. 

As we move into Q4 2023, we expect to see stock markets – despite recession probabilities – begin pricing in an inevitable economic recovery. This is less of a hope and more of a reliable and sequential response from markets historically which usually prices forward of the current economic condition by six to nine months. 


This could be a very exciting time as investors start to “buy the dip” ahead of what could be a strong bull market, in which clients can expect to return back to an environment where gains are seen each year, as opposed to losses… hurrah! 

There is an array of markets that have been heavily sold and now priced well below their fair value. Some of these are the likes of emerging market stocks, including China, which have suffered this year at the hands of their zero COVID policy. We also expect UK small and mid-cap stocks to shine, as prices for quality companies are at generational lows. 

As a result of the terrible war in Ukraine, we see huge potential in European value stocks which are – like UK mid-caps – currently priced at generational lows in some areas. ESG sectors are especially setting themselves up for a strong rally, particularly in areas linked to sovereign energy independence and green energy independence. There’s nothing like having your nation’s fuel held to ransom by Russia to make you realise things have to change. This positivity should manifest itself in the green energy transition and green energy infrastructure sectors, to name two.


So, all in all, a negative start to the year as we continue to digest a developing recessionary narrative which we believe will progress into a latter positive stage of the year as the market begins to anticipate the green shoots of economic growth moving into 2024.

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