BlackRock’s top minds seem worried. Investment strategists at the world’s largest asset manager warned of a coming recession, stubborn inflation, and a new era that won’t be so kind to investors in their 2023 Global Outlook released this week.

“The Great Moderation, the four-decade period of largely stable activity and inflation, is behind us,” vice chairman Philipp Hildebrand and a team of top executives wrote. “The new regime of greater macro and market volatility is playing out. A recession is foretold.”

Hildebrand and his team argue that the Great Moderation—a period of low inflation and steady economic growth—allowed stocks and bonds to flourish in a way that won’t be possible moving forward.

For investors, this new economic era will require a fresh, flexible strategy that involves selective stock picking and more active portfolio management.

“We don’t see the sustained bull markets of the past. That’s why a new investment playbook is needed,” they wrote. “What worked in the past won’t work now.”

A new era

Three major “regime drivers” are set to keep inflation elevated above central banks’ targets, subdue economic growth, and make it more difficult for investors to turn a profit for years to come, according to BlackRock.

First, aging populations will shrink workforces and force governments to spend more to care for the elderly, causing worker shortages and reduced production.

Second, tensions between global superpowers signal that we’ve entered into a “new world order,” where globalized supply chains that once helped reduce the price of goods may be broken.

“This is, in our view, the most fraught global environment since World War II,” Hildebrand and his team wrote. “We see geopolitical cooperation and globalization evolving into a fragmented world with competing blocs. That comes at the cost of economic efficiency.”

Finally, a more rapid transition to clean energy will ultimately be inflationary unless a new stream of investment flows into carbon-neutral solutions.

“If high-carbon production falls faster than low-carbon alternatives are phased in, shortages could result, driving up prices and disrupting economic activity,” they wrote. “The faster the transition, the more out of sync the handoff could be—meaning more volatile inflation and economic activity.”

Pricing the damage

BlackRock also broke down three themes to help prepare investors for the new normal in their 2023 forecast.

First, the asset manager’s experts argued that factoring in the “damage” done by central banks’ interest rate hikes and the risk of recession when evaluating stocks will be critical next year.