Recession? No Thanks, We’ve Already Had One

We were right that the Omicron wave would be big but non-lethal and would spell the end of the pandemic panic. We failed to anticipate the Ukraine crisis but called the top in energy and commodities. We were very wrong to be bullish on stocks but didn’t capitulate across the June/October double-bottoms. But we correctly called the outperformance of value over growth and non-US over US. We correctly called the back-up in yields but underestimated the magnitude. We correctly said inflation would prove to be transitory, with CPI peaking in February. But we very much underestimated the Fed’s hiking cycle – our big miss of the year. Our productivity-led boom as continued after a recession in Q1 and Q2, with real GDP now 5% above pre-pandemic levels with no more people working. The growth rate in Q3 and Q4 is faster than the pre-pandemic trend, even as the Fed has tightened financial conditions. Recession in 2023 is not at all inevitable.