The Horizon

2023 – The Horizon Ahead


The Horizon is a quarterly report from our Chief Investment Office, exclusive to Merrill Private Wealth Management, intended to help high net-worth clients pursue their personal goals by addressing timely topics in areas such as macroeconomic trends, long-term investment themes, market dynamics, asset allocation and portfolio strategy as well as wealth structuring, planning and transfer. 

In this edition, we highlight various factors that could signal a new equity bull cycle, and the potential value of incorporating a total return mindset and recognition of diversity, equity and inclusion into portfolio strategies.

With an aggressive tightening campaign by central banks, the slow emergence from a global pandemic, the onset of war in Europe, and significant levels of inflation, 2022 will go down as one of the most challenging years for investors. An unfolding global slowdown and still hawkish central banks have the potential to create additional volatility for them.

“As we head into 2023, conditions may come together for forward returns to improve and, at the same time, opportunities may arise to derive income from financial assets.”
— Emily Avioli, Assistant Vice President and Investment Strategist

We believe investors should maintain a disciplined approach during periods of heightened uncertainty. To assist in the process of rebalancing portfolios and putting cash to work in the upcoming quarters, they should be aware of certain triggers that could signal a new equity bull cycle,1 such as a shift lower in core inflation, a peak in labor market weakness, stabilization of corporate earnings downgrades, a weaker U.S. dollar and a spike in volatility. In Q4 2022, we saw inflation cool off slightly from the mid-year high of 9.1%, but remain far above the Federal Reserve’s target of 2%. A Fed pivot to a balanced focus on both inflation and growth sometime in 2023 is likely to be a major catalyst for stocks. Additionally, as the economy weakens, unemployment is likely to rise and a peak in jobless claims could coincide with an acceptable level of inflation from the Fed’s perspective. Expectations for corporate earnings in 2023 are declining, and moderating revenues and lower margins will remain headwinds, but a stabilization in the rate of downgrades should ultimately support equity prices. Further, the dollar, which is currently showing signs of peaking, could trend lower in a sustainable fashion sometime in 2023 and 2024, to the benefit of international investments. Lastly, volatility indicators, such as the Chicago Board Options Exchange Volatility Index (VIX), remain at levels that are not yet considered a turning point for Equities. However, if the Fed continues to keep policy tighter for longer, this could cause an increase in volatility, leading to a potential trough in major indexes.

Where the period from 2019 to 2021 was characterized by capital appreciation propelled by abundant liquidity and lower rates, 2022 brought a re-evaluation of liquidity conditions and asset valuations. As we head into 2023, conditions may come together for forward returns to improve and, at the same time, opportunities may arise to derive income from financial assets. Therefore, we believe investors could consider applying a total return mindset to portfolios.2 Valuation metrics, such as current forward price-to-earnings (P/E) levels, indicate that the S&P 500 could see average annual returns in the mid- to high-single-digit range over the coming 10 years. Additionally, the S&P 500’s dividend payout ratio is below its long-term average, which signifies that dividends have room to grow in the coming years to meet the needs of the expanding ranks of retirees looking for additional income-producing investments. This demographic shift supports the potential for companies to increase their shareholder payouts and for dividend-producing Equities to outperform in the years ahead. With a slowing economy and moderating inflation, Fixed Income is currently providing attractive levels of income given higher levels of real and nominal yields as of the date of this report and also could potentially provide capital appreciation in the years ahead. In this next era of investing, it is our opinion that total return investments like income-producing Equities, Fixed Income and certain alternatives can present attractive prospects for long-term investors.

“With economic volatility projected to remain for the immediate future and economic distortions from the pandemic still filtering through, we recommend investors continue to maintain a balanced, long-term approach within their portfolio strategy.”
— Theadora Lamprecht, Investment Analyst​

The global pandemic and multidecade-high inflation levels have disproportionally impacted minority groups, underlining the urgency of promoting a diverse, equitable and inclusive world. In Diversity Equity & Inclusion: A Lens for Investing,3 we highlight that a growing body of evidence suggest that inclusion of these factors, both in society and one’s portfolio, could potentially lead to increased economic growth and sustained long-term outperformance. The Bank of America Institute found that including individuals from different backgrounds with unique perspectives leads to a more innovative workforce, which can drive productivity. If this ‘innovation mindset’ was increased by 10% across countries, global GDP could rise by up to $8 trillion by 2028. Investors can consider taking part by either using actively managed funds that invest in companies with robust support for gender inclusivity, or passive strategies that track companies with diversity within management teams. In addition, many municipal bond strategies recognize the social value of some revenue bonds and the potential to directly address systematic inequalities in local communities.


With economic volatility projected to remain for the immediate future and economic distortions from the pandemic still filtering through, we believe investors should continue to maintain a balanced, long-term approach within their portfolio strategy. As we move towards a more foundational state in the markets and economy, the next few quarters could be characterized by moderating inflation levels, less hawkish (to dovish) central bank actions and an ultimate recovery in the business cycle.

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1 Chief Investment Office, “Five Triggers To Monitor For A New Equity Bull Cycle,” Capital Market Outlook, September 26, 2022.

2 Chief Investment Office, “Applying A Total-Return Mindset To Portfolios,” Capital Market Outlook, November 28, 2022.

3 Chief Investment Office, “Impactonomics: Diversity Equity & Inclusion: A Lens For Investing,” November 2022.

Important Disclosures

All data, projections and opinions are as of 1/3/2023 and subject to change.

This material does not take into account a client’s particular investment objectives, financial situations or needs and is not intended as a recommendation, offer or solicitation for the purchase or sale of any security or investment strategy. Merrill offers a broad range of brokerage, investment advisory (including financial planning) and other services. There are important differences between brokerage and investment advisory services, including the type of advice and assistance provided, the fees charged, and the rights and obligations of the parties. It is important to understand the differences, particularly when determining which service or services to select. For more information about these services and their differences, speak with your Merrill financial advisor.

Bank of America, Merrill, their affiliates, and advisors do not provide legal, tax, or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.

This information should not be construed as investment advice and is subject to change. It is provided for informational purposes only and is not intended to be either a specific offer by Bank of America, Merrill or any affiliate to sell or provide, or a specific invitation for a consumer to apply for, any particular retail financial product or service that may be available.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).

All recommendations must be considered in the context of an individual investor’s goals, time horizon, liquidity needs and risk tolerance. Not all recommendations will be in the best interest of all investors.

Asset allocation, diversification and rebalancing do not ensure a profit or protect against loss in declining markets.

Investments have varying degrees of risk. Some of the risks involved with equity securities include the possibility that the value of the stocks may fluctuate in response to events specific to the companies or markets, as well as economic, political or social events in the U.S. or abroad. Bonds are subject to interest rate, inflation and credit risks. Treasury bills are less volatile than longer-term fixed income securities and are guaranteed as to timely payment of principal and interest by the U.S. government. Investments in foreign securities (including ADRs) involve special risks, including foreign currency risk and the possibility of substantial volatility due to adverse political, economic or other developments. These risks are magnified for investments made in emerging markets. Investments in certain industry or sector may pose additional risk due to lack of diversification and sector concentration. There are special risks associated with an investment in commodities, including market price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and the impact of adverse political or financial factors. Investing in fixed-income securities may involve certain risks, including the credit quality of individual issuers, possible prepayments, market or economic developments, and yields and share price fluctuations due to changes in interest rates.