Inflation, and the Fed’s degree of aggressiveness in trying to contain it, will likely remain a critical factor driving equity performance as 2023 gets under way. But investors will also be watching for fallout from higher interest rates, including how tighter monetary policy ripples through the economy and whether it makes other assets more competitive with stocks.
If a recession starts next year, stocks could be set for another slide: A bear market has never bottomed before the beginning of a recession, historic data showed. Yields on the 10-year Treasury Inflation-Protected Securities — also known as real yields because they strip out projected inflation — recently stood at around 1.6 per cent, after hitting their highest level in over a decade in October.