What are the trends that will shape the global financial markets in 2023?

In mid-February, Professor Abby Joseph Cohen, retired partner and formerly chief investment strategist for Goldman Sachs, offered her assessment of global markets as economies around the world continue to struggle with inflation and other headwinds.

The event, “2023 Global Markets: What’s Ahead and What We Can Leave Behind,” was hosted by the Jerome A. Chazen Institute for Global Business and moderated by Pierre Yared, the MUTB Professor of International Business, senior vice dean for faculty affairs and vice dean for executive education at Columbia Business School.

Cohen and Yared discussed such topics as the reopening of China, industries and regions with the most opportunity and risk, and the path ahead for the U.S. Federal Reserve.

Here are some of Professor Cohen’s key insights:

On inflation, earnings, and the economic outlook: Cohen said that while the latest data show inflation is still elevated, it has been cooling in recent months. The Federal Reserve will stay vigilant, although most of the interest rate increases have already occurred.  Stock price performance in 2023 will be linked to corporate earnings performance. Some industries, like energy, will have tough comparisons to 2022.  Cohen expects the US economy to avoid recession due in large part to the resilient consumer sector. There are still almost twice as many open jobs as available workers. Wages are rising for middle-income and lower-income earners.

On the reopening of the Chinese economy: Although the consensus view is that the global economy will benefit from the reopening, Cohen said the initial process is “not going well,” as China faces problems with high infection and death rates after abandoning its strict pandemic policy. She noted that many global companies found new supply sources during the worst of the pandemic, and have become less dependent on Chinese suppliers. “Will these companies be anxious to head back to China, given the rise in geopolitical pressures including threats to Taiwan?”

On the threat of other geopolitical risks: There are risks from “bad players out there,” including Iran and North Korea. The Russian invasion of Ukraine remains deeply worrisome, although Cohen said she is recently encouraged by activity taken by NATO to impede an expansion of the Russian offensive along borders with Poland and Moldova. 

On the debt ceiling debate: Cohen is concerned that the political theater threatened by several Congressional Republicans over raising the country’s borrowing limit could hurt the global financial markets and the economy. “Even getting close to the edge can be damaging,” she said. Fortunately, discussions between President Biden and the Republican leadership have already begun.