The global economy has faced many setbacks this year due to inflation, the war in Ukraine, China’s zero-Covid policy, and many other factors. Unlike the U.S., which largely rebounded from the pandemic, many countries have faced a tougher road to recovery. Still, there are reasons to maintain a broad perspective on the global landscape as these factors stabilize, such as how might this evolve in the coming year and what impact may it have on long-term portfolios? In general, investors shouldn’t neglect to look beyond U.S. borders at international opportunities. Staying on top of developments across global economies, including trends in trade and geopolitics, can make investing exponentially more complex. Fortunately, diversification can benefit investors even without following events and data in every country. What helps is simply to focus on the right global trends. Global growth is expected to slow further in 2023 before recovering Sources: Clearnomics, Organization for Economic Co-operation and Development (OECD). Global Gross Domestic Product (GDP) Growth, Actuals and Forecasts. Twice a year, the OECD, an international organization consisting of mostly developed countries, releases new economic projections across regions and countries. Its most recent report highlights the challenges that still face the global economy. Overall, worldwide economic output is forecasted to decelerate from 3.1% in 2022 to 2.2% in 2023. These numbers represent significant declines from 2021 when many economies were roaring back from the pandemic and before inflation began surging. There are two important points to note from these forecasts. First, while growth is expected to slow, few major regions and countries are anticipating recessions (i.e. negative growth). Even where recessions are expected, the declines will likely be small and not on the scale of 2008 or 2020. This is true even in Europe, which is on the front lines of the war in Ukraine and has been heavily exposed to rising energy prices. So, although growth in the region will be meager, dragged down by countries like Germany, it could also be supported by growth in countries such as France, Spain and Italy. In contrast, China might experience re-accelerating growth if it begins to ease its Covid policies, allowing its economy and manufacturing activities to fully reopen. This is also true in Japan, which has experienced only modest inflation, unlike most other parts of the world. Other major countries in the region, including Korea and India, are expected to see relatively steady growth. Unsurprisingly, Russia is the outlier and is expected to shrink by 3.9% in 2022 and 5.6% in 2023 due to the heavy toll from its military campaign. Second, these forecasts also suggest that growth could rebound again in 2024 once the economic shocks of the past year begin to fade. Based on this, nearly all economies are expected to experience positive growth in 2024. While multi-year forecasts should be taken with a grain of salt, they suggest that many economies can eventually bounce back from today’s challenges. Ultimately, what matters to investors is that, despite ongoing economic challenges, it’s likely that markets have already priced-in much of this information. After all, the inflationary and geopolitical pressures that have driven these trends have been on investors’ radars since the start of the year. In fact, any easing of these pressures could help to improve investment and valuation prospects. International valuations are attractive Sources: Clearnomics, Standard & Poor’s, MSCI, Refinitiv. , December 18, 2012 – November 29, 2022 using a ten-year rolling window. U.S. stocks are represented by the S&P 500 Index, Developed Markets by the MSCI EAFE Index, and Emerging Markets by the MSCI Emerging Markets Index. The events of the last few years only underscore the need to stay diversified and to take advantage of more attractively valued investments. Predicting which region or country might outperform in any given year is not only difficult but might be impossible. While the U.S. has done well over the past decade, the decade prior to this experienced significant growth and returns across international markets. Ultimately, this is not an either-or choice. Instead, what matters is maintaining a proper asset allocation that benefits from global trends and attractive themes across regions. In this environment, it may take time for trends such as high energy prices and geopolitical tensions to be fully resolved. Investors should also not be surprised by unforeseen events such as those of the past few years. However, other factors such as Federal Reserve (Fed) tightening, interest rates and financial conditions have begun to ease. As this occurs, poor economic performance and investor sentiment could shift in many countries. This won’t be an overnight process, just as the OECD’s forecasts suggest, but this is also why it takes patience to be positioned for long-term gains. _________________________________________________________________________________________________ The forward price-to-earnings ratio (forward P/E) is a valuation metric that compares shares prices to projected future earnings per share. Indexes are unmanaged and it is not possible to invest directly in an index. The Standard & Poor’s (S&P) 500 Total Return Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the equity market performance of developed markets, excluding the US & Canada. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in Amplify Funds statutory and summary prospectus, which may be obtained above or by calling 855-267-3837, or by visiting AmplifyETFs.com. Read the prospectus carefully before investing. Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. It is not possible to invest directly in an index. Amplify ETFs are distributed by Foreside Fund Services, LLC.
In 2022, equity markets fell into bear territory and experienced the worst annual performance since 2008. The S&P 500, Dow and Nasdaq declined 19.4%, 8.8% and 33.1%, respectively last year. Inflation worsened as the Consumer Price Index climbed to a 40-year high of 9.1% in June. As a result, the Federal Reserve (Fed) hiked rates seven consecutive times from 0% last March to 4.25% in December. Along the way, a myriad of other events impacted markets, from the war in Ukraine to China’s zero-Covid policy, affecting everything from oil prices to the U.S. dollar. These market swings can cause whiplash for even the most experienced investors. Like an earthquake that then causes a tsunami, the sudden drop and resurgence in demand, fiscal and monetary stimulus, and global supply chain capacity since 2020 have created shock waves across the financial system. Despite these historic shifts in the economy and markets over the past year, the principles of long-term investing haven’t changed. Staying focused on longer time horizons is more important than ever. After all, this is how it felt in March of 2020 before the rapid recovery, in 2008 before a decade-long expansion, and during countless other times across history. Below, we review three insights from the past year that can help investors to maintain a proper long-term perspective in 2023. Beneath all of the headlines and day-to-day market noise, one key factor drove markets: the surge in interest rates broke their 40-year declining trend. Since the late 1980s, falling rates have helped to boost both stock and bond prices. Over the past year, the jump in inflation pushed nominal rates higher and forced the Fed to hike policy rates. This led to declines across asset classes at the same time. While this has created challenges for diversification, there is also reason for optimism. Most inflation measures are showing signs of easing, even if they are still elevated. This has allowed interest rates to settle back down in recent months, even as the Fed continues to hike rates. While still highly uncertain, most economists expect inflation and rates to ease over the next year rather than repeat the patterns of 2022. The Fed hiked rates across seven consecutive meetings in 2022, including four 75 basis point (0.75%) hikes in a row. At a range of 4.25% to 4.50%, the fed funds rate is now the highest since the housing bubble prior to 2008. In its communication, the Fed has remained committed to raising rates further and keeping them higher for longer in order to fight inflation. This is where the market arguably had unrealistic expectations last year. The market rally from June to August, and again in October and November, occurred when investors believed the Fed might begin loosening policy. When these hopes were dashed, markets promptly turned around, causing several back-and-forth swings over the course of the year. These episodes show that good news that is supported by data can be priced in quickly, but investors should not get ahead of themselves. At this point, the direction of inflation may matter to markets more than the level. Investors have been eager to see signs of improvement across both headline and core inflation measures, and good news has been priced in rapidly. There are reasons to expect better inflation numbers over the course of 2023. While 2022 was challenging, history shows that markets can turn around when investors least expect it. While it can take two years for the average bear market to fully recover, it’s difficult if not impossible to predict when the inflection point will occur. Many investors have wished that they could go back to mid-2020 or 2008 and jumped back into the market. If research and history tell us anything, it’s better and easier to simply stay invested rather than attempt to time the market. This could be true again in 2023, just as it was during previous bear market cycles. ________________________________________________________________________________________________ Basis points are a unit of measure used to describe percentages in the financial industry. One basis point is equivalent to 0.01%. Indexes are unmanaged and it’s not possible to invest directly in an index. The S&P 500 Total Return Index is a market-capitalization-weighted index of the 500 largest U.S. publicly traded companies. The Bloomberg U.S. Aggregate Bond Index tracks the performance of U.S. investment-grade bonds. Carefully consider the Fund’s investment objectives, risk factors, charges, and expenses before investing. This and additional information can be found in Amplify Funds statutory and summary prospectus, which may be obtained above or by calling 855-267-3837, or by visiting AmplifyETFs.com. Read the prospectus carefully before investing. Investing involves risk, including the possible loss of principal. Shares of any ETF are bought and sold at market price (not NAV), may trade at a discount or premium to NAV and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. It is not possible to invest directly in an index. Amplify ETFs are distributed by Foreside Fund Services, LLC.
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