Current widespread growth increases the risks that a recession will take longer to materialize, require higher policy rates, and be deeper than was expected. Global downturns are amplified when synchronized. Central banks are approaching the final stage of their tightening cycles. It will take time to ascertain the magnitude of the inflation unwind. While there are signs that global economies are recovering, (healthy balance sheets, modest investment cycles, and businesses that are reticent to shed hard-to-find labor), the lagged effect of central bank tightening across economies risks a more synchronized and deeper downturn.

After volatility in 2022 and mixed earnings results, January was a positive start to the new year, characterized by stronger GDP growth, a slowing pace of inflation, and expectations of reduced rate hikes by the Fed. With this considered, we believe that the economy will not fall into recession in the first quarter. In February, we revised our twelve-month forward outlook for the U.S. economy, pushing out the anticipated recession to the third quarter of 2023. The new Outlook is for six months of Stagnation, followed by three months of Recession and then three months of Stagnation.

The Chinese economy expanded by 3.0% in 2022, the second slowest pace since 1976 amid the impact of Beijing’s zero-COVID policy.1 China’s annual inflation rate rose to 2.1% in January from 1.8% in December.2 Eurozone quarterly economic growth came in at 0.1% in the fourth quarter, down from a 0.3% in the previous three-month period. Amongst the bloc’s largest economies, GDP grew in the Netherlands, Spain, and France, but contracted in Germany and Italy.3 The Euro Area recorded a trade deficit of EUR 8.8 billion in December of 2022, little changed from the previous year.4 The Consumer Price Index in the Euro Area decreased 0.4% month-over-month in January of 2023.5 The U.S. economy expanded an annualized 2.9% on quarter in Q4 2022, following a 3.2% jump in Q3.6 The annual inflation rate slowed only slightly to 6.4% in January from 6.5% in December.7 The unemployment rate inched lower to 3.4% in January, the lowest level since May 1969.8 Canada posted a trade deficit in December 2022, mainly driven by strength in prices. It marks the second consecutive year of trade surplus, following annual deficits from 2015 to 2020.9 Canadian headline inflation fell to 5.9%,in January from 6.3% in December. The downside surprise occurred despite a much larger 1.1% m/m rise in food prices.10 The unemployment rate in Canada held steady at 5% in January.11

In January, the S&P 500 was up 6.3%, posting its best January performance since 2019. Smaller caps performed better, with the S&P Mid Cap 400 and S&P Small Cap 600 up 9.2% and 9.5%, respectively. Yields declined amid the market’s expectation of a slowing pace of Fed rate hikes. The Canadian S&P/TSX Composite rose 7.4% in January. International equities outperformed the U.S., boosted by a weakening U.S. dollar and China’s reopening. The S&P Europe 350 had its best start to the year since 2015, up 6.9% in January. Mid and small caps did better, with the S&P Europe Mid Cap and the S&P Europe Small Cap up 9.3% and 8.5%, respectively. Thirteen of sixteen countries contributed positively to pan-European equity returns in January. The French market was the best, contributing +1.60%, followed by Germany and the U.K., with 1.27% and 1.10% in turn. The S&P Pan Asia BMI had its best start to the year since 2012, up 7.3% in January.

In February, our optimization process identified portfolio solutions for our Model Risk Thresholds, with the exception of the Conservative Model. With this guidance, we maintained our asset allocation, including the twenty percent cash position across all models. 2022 provided an example of how diverse sources of demand and supply can provide gold with its uniquely stable portfolio-additive performance as gold produced a marginal gain in 2022.

The current economic recovery is unstable, as the synchronized global pressures of demand contraction, supply shock, and weakening expectations prevails. We are currently positioned for a recession in the U.S. in the third quarter. Our approach to portfolio management is nimble, opportunistic, and deliberate in identifying asset classes that are best placed to generate returns in a new world order. Our focus is on protecting portfolios from downside risk, and we believe that our investment process is working to achieve that goal.


Deborah Frame, President and CIO


1 Trading Economics. China GDP. February 10, 2023.

2 Trading Economics. China Inflation. February 10, 2023.

3 Trading Economics. Eurozone GDP. February 14, 2023.

4 Trading Economics. Eurozone Trade. February 15, 2023.

5 Trading Economics. Eurozone Inflation. February 1, 2023.

6 Trading Economics. U.S. GDP. January 26, 2023.

7 Trading Economics. U.S. Inflation. February 14, 2023.

8 Trading Economics. U.S. Unemployment. February 3, 2023.

9 Trading Economics. Canada Trade. February 7, 2023.

10 Trading Economics. Canada Inflation. February 21, 2023.

11 Trading Economics. Canada Unemployment. February 10, 2023.


Index return data from Bloomberg and S&P Dow Jones Indices Index Dashboard: U.S., Canada, Europe, Asia, Fixed Income. January 31, 2023. Index performance is based on total returns and expressed in the local currency of the index.