Our Christmas wish last year was supply chain normalization. We must have been on Santa’s naughty list because instead we got a big lump of coal! While inventory levels increased throughout the year, it was due to inventory building by retailers rather than meaningful improvement in supply chains.
With 2022 effectively done and dusted, we have only seen incremental evidence of supply chain normalization. In fact, we expect supply chain challenges will continue to be a dominant headwind in 2023. Although China’s zero-COVID policy — the single-largest driver of supply chain disruptions since the onset of the pandemic — was recently relaxed, the country will not return to pre-pandemic conditions overnight, and neither will supply chains. Looking ahead to 2023, we believe there is another market catalyst that matters even more. Topping our Christmas wish list this year is…drumroll, please… a pause in fed fund rate hikes by the Federal Reserve (Fed)!