The Investment Story of 2023 as Told in One Important Chart

“If you want to know the future, look at the past.” - Albert Einstein

Welcome to DoubleLine’s Between the Lines macro blog. On this platform, Sam Garza , Ryan Kimmel and Fei He, CFA , will explore with our investors and the public at large some of the interesting insights, charts and connections the DoubleLine macro team comes across. Let's dive in!

As we approach the final weeks of 2023 and look to usher in the new year, it is time to reflect: What panned out as expected and what did not?

Heading into 2023, we were looking at “the most anticipated recession in history” with the consensus projecting a 65% probability of recession, with forecasts of an economic contraction at the beginning of the year. See chart above. As the year rolled on, growth estimates were revised higher based on a number of factors, including stronger household demand and resilient private investment. A robust labor market, pent-up household savings and fiscal expansion were some of the key factors behind the better-than-expected demand (concepts we will explore in the future).

What did the market get right? Inflation decelerated during the year broadly in line with consensus, with the headline Consumer Price Index print falling from 6.5% year-over-year (YoY) in December 2022 to 3.2% YoY at the end of October, very close to 2023 year-end forecasts made at the beginning of the year (green line). The disinflationary impulse was broad based, with deceleration in the volatile food and energy components as well as core goods and services. ?

Normally an environment of decelerating inflation would be a positive backdrop for fixed income, but that was offset by the lack of a recession and unexpected positive economic growth that resulted in the yield on the 10-year U.S. Treasury surging to a 16-year high above 5.00%.

As we approach 2024, we find ourselves in a familiar scenario to one year ago with broad expectations for slowing economic growth and the continued receding of inflation, both of which if realized would be an excellent backdrop for fixed income investments. Stay tuned.