PERSPECTIVE3-5 min to read

Webinar: Market update and economic outlook (Q2 2023)

A shallow recession looks likely later in 2023



Caspar Rock
Chief Investment Officer
Christopher Lewis
Head of Investment Strategy, Wealth Management
Kate Leppard
Head of Client Service, UK Wealth Management

Economic outlook

The global economy has proved remarkably resilient this year. Unfortunately, we still believe that we are heading towards recession in developed markets. This is not currently reflected in equity markets, which continue to price in a more benign economic environment.

Central banks remain focused on ensuring that inflation continues to fall and re-establishing their inflation-fighting credentials. We expect the Fed, ECB and BoE to all raise rates again in the second quarter.

We may then see a pause in interest rates rises, but interest rate cuts will not necessarily follow. There could well be further volatility ahead in stock and bond markets as investors pare back current expectations for rate cuts.

More positively, China’s continued post-Covid recovery could limit the depth and duration of any slowdown.

How we’re positioned

Our tactical asset allocation reflects our thinking on the outlook for the economic cycle. In line with our view that we are heading towards a recession, we have been underweight equities and favoured exposure to investment grade bonds and absolute return funds.

Within our equity exposure, we have been increasing our allocation to higher quality companies. We have seen companies with stronger balance sheets significantly outperform those with weaker balance sheets, as well as the broader market. We expect this trend will continue.

We are looking for opportunities to rebuild our equity exposure. However, the signals that we monitor suggest it is still too early to do so.

For now, other asset classes continue to look attractive. Investment grade bond yields are generally higher than equity dividend yields. In a more challenging environment, this additional yield can be an important component of return.

This also applies to government bonds, which are now offering the highest level of yield in over a decade. Importantly, their correlation with equities is once again negative. This means that government bonds should once again offer some portfolio protection in the event of equity market weakness.

Five key longer-term trends

  • Higher inflation for longer
  • Monetary policy set to remain restrictive
  • More populist politics
  • Reshaped global supply chains and energy policy
  • More investment in technology

We have been reflecting these themes in portfolios for some time through our investments in infrastructure, energy transition and other areas.

For further details, please watch the webinar replay above.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


Caspar Rock
Chief Investment Officer
Christopher Lewis
Head of Investment Strategy, Wealth Management
Kate Leppard
Head of Client Service, UK Wealth Management


Global Market Perspective
Economic views
Economic & Strategy Viewpoint
Thought Leadership

The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.