We’re anticipating modestly positive calendar year returns for stocks in 2023, but with continued volatility and market weakness in the near term. A soft landing is still possible and more likely if the Federal Reserve (Fed) hikes rates by less than what Fed officials are currently forecasting. We provide our view on the paths for inflation, monetary policy, the economy, and markets.

Divided government returns to Washington in 2023 as Republicans will have the majority in the House, while Democrats will retain the majority in the Senate.  A split Congress typically complicates governing, and the situation in 2023 will be exceptionally complicated given the narrow majorities in both the House and the Senate.  Legislation will likely be limited to a handful of “must-do” bills, and even then it will be difficult to reach compromises to pass critical bills.  Regulatory action is likely where most policy changes will be enacted.