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2023 Themes and Wild Cards

On December 1st and 2nd, 2022, the Anfield Investment Committee gathered for the 2022 Annual Economic and Investment Forum in Newport Beach for part one of a four-part series in evaluating what we believe 2023 may hold for investors.

This year’s Forum featured an impressive line-up of external speakers. Many thanks again for their participation and valuable insights:

• Harry Murray, CFA, Portfolio Manager at Deer Park

• Scott Gibson, Managing Director at Deer Park

• Keith Luna, CFA, Portfolio Manager at Western Asset Management Company

• Jeffrey Cleveland, Chief Economist at Payden & Rygel

• Ben Lofthouse, CFA, Head of Global Equity Income at Janus Henderson

• Sam Irvani, Chief Investment Officer at Waveland Capital Group

• Andrew Opdyke, CFA, Senior Economist at First Trust

• Michael Story, CFA, Senior Vice President at PIMCO

In addition, we heard topical presentations from the following members of the Anfield Investment Committee:

• Jake Carnegie, Investment Analyst: U.S. Consumer

• Ray Cheesman, Senior Credit Analyst: U.S. Corporate Earnings

2023 Potential Themes

1. Central Banks: Stay the Course or Chicken Out

  • With CPI numbers seemingly on the decline (or at least cooling over the last two months), what does the Fed see as a trajectory that would result in pausing and perhaps stopping, their rate hikes? Keep in mind that the Fed has been relatively quiet on the quantitative tightening (“QT”) front—there is a lot they can do here to further tighten financial conditions

  • Does the Fed decide to focus on a “Sole” mandate instead of their stated “Dual” mandate, and sacrifice the labor market for the sake of bringing down inflation? How much pain is too much pain?

  • On numerous occasions in the past, the Fed has “chickened out” and become less restrictive due to an external event (think Asian debt crisis, as an example). All indications are they will follow through this time around (and partially because they have already come most of the way, in our opinion)

  • The Fed is the leader of global central banks in our view. When the US sneezes, the world gets a cold, the saying goes, and we believe it is no different with global central bankers

2. Inflation as a Mindset

  • Even if central banks stay the course, we find it difficult to see how they are able to get inflation back to their 2% targets by YE 2023

  • We believe there will be a continued strain on the economy as the Fed continues to act (and even when they stop). At the time of this writing, we are currently at a CPI print of > 7%, and we believe it would take drastic measures from the Fed to get inflation down to 2% in an expeditious manner. We view a more gradual pace going forward as more likely.

  • The U.S. has had some growing pains this year as a new generation of investors are experiencing what it is like to live through this type of market and economic environment. In the 70s and 80s, inflation and resultant market volatility were not simply “one year and done” phenomena. Similarly, we believe this is going to be a prolonged process that people just have to get as comfortable with as possible

3. The “R” Word

  • As our team has been discussing this year, we believe rising rates, higher inflation, and a mild-to-moderate recession scenario are critical to resetting relationships between growth, cost of money, pricing power, profit margins, and allocation of capital.

  • There are different kinds of recessions, but rarely is one good on an investor’s wallet! Real GDP can still decline by a minimal amount and the S&P 500 could have a terrible drawdown (see: 2001). The relationship between what the economy does and what the market does needs to be monitored as they are not always synchronous.

  • While inflation may be trending downwards, markets still have to deal with corporate earnings. Coming off the back of an increasing rate environment, there is potential many companies may be negatively revising their outlooks come Q1.

2023 Potential Wildcards

1. Central Banks “Stick the Landing”

  • Could Central Banks like the Fed, ECB, etc., deliver lower inflation at or near target levels while avoiding a recession and labor market carnage?

2. A Geopolitical Reprieve

  • Could there be a Ukraine/Russia offramp?

  • Could we avoid trade wars or escalations between developed nations (e.g. US, Canada, EU, UK)?

    • Recently, the EU and Canada have been at loggerheads with the US about the Inflation Reduction Act and how it puts the former countries at a significant disadvantage within their industrialization complex, due to tax incentives to U.S. companies in the automotive and environmental sectors

  • Will China start playing nice with its neighbors? What if China, in light of how the world has responded strongly in Ukraine’s favor, ceded control back to Hong Kong and took a much softer stance on Taiwan?

3. US Bipartisanship

  • Perhaps the wildest of wild cards we could think of, but what if the GOP House worked with the Democratic Senate and White House to pass legislation that stimulates economic growth?

4. Chinese Reflation

  • Does China fully reopen and adjust to current health conditions (i.e., COVID)? If so, they are the sleeping giant in the global economy?

As mentioned in the introduction, Themes and Wildcards are only Part I of a 4-part process. The next component will be our annual macro-economic forecast which is underway now and will be distributed soon.

Until then, Happy Holidays and best wishes for 2023 from the team at Anfield!


Anfield Capital Management, LLC is a registered investment adviser with the SEC. The purpose of this communication is to provide general information, opinion, and outlook. All references to potential future developments or outcomes are strictly the views and opinions of Anfield Capital and in no way promise, guarantee, or seek to predict with any certainty what may or may not occur in global economies and investment markets. The contents of this report should not be relied upon in making investment decisions.

This information is provided “as is” and is not intended to represent the performance of an actual investment account. Information and data presented were obtained from sources considered reliable and correct; however, we cannot guarantee their accuracy or completeness.

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