A trifecta of factors support the dollar, including the relatively strong performance of the U.S. economy, tightening monetary by the Federal Reserve, and safe-haven buying. These are likely to remain intact into 2023.
Economic uncertainty may have peaked in the first half of 2022, but it remains high. Stocks are likely to continue to feel the weight of Federal Reserve policy tightening, shrinking market liquidity and slower economic growth.
Rising inflation, rate hikes, supply-chain problems and the Russia-Ukraine war have contributed to growing recession fears. While recessions are impossible to predict, we think the risk of one—sooner rather than later—has picked up.
The energy picture is anything but clear. There are numerous scenarios that could result in much higher or lower oil prices. Until there is more clarity, we think it's prudent to maintain a market-weight Energy sector allocation.
The human costs of military action are unmeasurable. Yet, the stock market reaction to an incursion or invasion of Ukraine may echo those of the past with little measurable impact for diversified investors.