The Everything Everywhere All at Once Rally

January 30, 2023 Jeffrey Kleintop
Despite market volatility, inflationary pressures, and a potential earnings recession, a rally involving stocks, bonds, and some commodities started in November still persists.

"Everything Everywhere All at Once" was nominated for an Academy Award in nearly every major category this year. The adventure follows a woman hopping through multiverses as different versions of herself. During the past three months, nearly every investment asset class in every country has rallied. The "everything everywhere all at once rally" has included stocks (U.S., international, and emerging markets), bonds, and some commodities (like metals) with most posting double-digit gains. For investors, it feels like a different multiverse than it did for most of 2022.

Everything rally

Bar chart showing total return performance since October 31 2022 for various stock and bond indices, and CBOE futures contracts for copper and aluminum.

Source: Charles Schwab, Bloomberg data as of 1/28/2023.

All are indexes except commodity prices which are measured by the futures contracts as traded on the CBOE. Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly. Past performance is no guarantee of future results.

There have been some exceptions to the rally—such as oil prices. But the widespread rally after 2022's triple-bear market in stocks, bonds, and commodities (including cash when inflation-adjusted) has been welcomed by investors battered by two bear markets in two years (2020 and 2022).


What changed and prompted the rally that began in November?

  • Global central banks began to signal a stepdown in the size of their interest rate hikes as headline inflation measures began to peak. October/November was the last big 75-basis-point rate hike for the Federal Reserve, the European Central Bank, and the Bank of England as they signaled future hikes would be smaller as they near their targets. The October core inflation reading in the U.S., released in November, revealed that inflation had likely peaked back in September. November readings of headline inflation in Europe and the United Kingdom showed a peak in October.

Central bank actions

Bar chart highlighting the level of hikes from March 2022 through March 2023, with forecasts for February and March, for the central banks of Brazil, Poland, Norway, Australia, Canada, the EU, UK, and U.S.

Source: Charles Schwab, Bloomberg, as of 1/26/2023.

Months in which the central bank did not meet to make policy are blank. Forecasts contained herein are for illustrative purposes only, may be based upon proprietary research and are developed through analysis of historical public data.

  • China's policymakers signaled a reopening after the Party Congress meeting in late October. Zero-COVID policy lockdowns sharply depressed China's economy for much of 2022 and led to increasing protests. The expectation of a return of growth in the world's second-largest economy eased fears of a deeper and prolonged global economic downturn. Despite rising COVID infections, Chinese consumers seem to be re-emerging, evidenced by data from aviation industry tracker Cirium: Chinese domestic air travel in January surged 10% above its pre-pandemic January 2019 level, and is estimated to have exceeded levels of U.S. domestic travel. 
Line chart showing number of domestic airline passengers for the U.S. and China from 2006 through present.

Source: Charles Schwab, Cirium data as of 1/28/2023.

  • The European economy has seen better than expected economic data and a mild winter that set aside concerns about an energy crisis stemming from the war in Ukraine. When measured as one economic bloc, Europe's economy is larger than either the U.S. or China's. Europe's economic surprise index has been steadily climbing. A reading for the Citi Economic Surprise Index above zero means data is coming in better than Bloomberg-tracked economists' forecasts and below zero means it is worse than forecast. These stronger economic conditions have further bolstered confidence that the downturn in Europe may remain mild and could end soon.


Line chart shows the Economic Surprise Index levels from October 2022 through January 2023 for Emerging Markets, Eurozone, Japan, and the U.S.

Source: Charles Schwab, Bloomberg data as of 1/28/2023.


What are the main risks to this rally?

  • An improved economy in Europe and China's reopening may bring renewed inflation pressures. The latest data on core inflation in Europe hit a new all-time high as growth continues to surprise on the upside. The outlook for a resurgence in China's demand has pushed up commodity prices and helped clear excess inventories at manufacturers and retailers, reducing their need to offer price discounts.
  • Central banks might be forced to continue their rate hikes. If inflation pressures are renewed, or if services inflation [which contributes about half of total consumer price index (CPI) in the U.S. and Europe] remains stubbornly high, central banks may not be able to end their hikes as soon as the market expects. At this time the markets seem to be pricing in interest rate cuts by the Fed starting later this year, not continued hikes. Any unwelcome news on inflation could undermine market optimism and likely prompt a sell off.
  • An earnings recession may be just starting. In the U.S., the ongoing earnings reports for the fourth quarter of last year thus far show a -2.9% year-over-year decline and are expected to do so again in the first and second quarters of 2023 as earnings per share (EPS) estimates continue to fall. In Europe, earnings are expected to have risen 9.5% in the fourth quarter but may be facing declines in the quarters ahead, especially in the commodity-driven energy and materials sectors. Downward revisions to earnings estimates continue to outpace upward revisions for the stocks in the MSCI World Index. Negative sentiment on earnings may outweigh the brighter gross domestic product (GDP) outlook in Europe and China.

Of course, there are plenty of other risks too, some of which we listed in our Top Global Risks for 2023 published a few weeks ago.

What to do

Market volatility has been and could continue to be high. Global stock markets have moved by about 5% or more in each of the past eight months: to the downside in June, August, September, and December, and to the upside in July, October, November, and January. That volatility may continue as these drivers and risks battle it out with a multiverse of realities facing investors.

Regardless of the near-term, we continue to believe that investors should Go With the Flow in 2023 and focus on market leadership by international stocks and "quality" stock factors, such as low price-to-cash flow ratios and high dividend yields, which performed well last year and could continue to lead markets higher.

Michelle Gibley, CFA®, Director of International Research, and Heather O'Leary, Senior Global Investment Research Analyst, contributed to this report.

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The MSCI China Index captures large and mid-cap representation across China A shares, H shares, B shares, Red chips, P chips and foreign listings (e.g. ADRs) and represents about 85% of the China equity universe.

The MSCI Germany Index captures the performance of the large and mid-cap segments of the German market and represents about 85% of the equity universe in Germany.

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The MSCI Spain Index captures the performance of the large and mid-cap segments of the Spanish market and represents about 85% of the equity universe in Spain.

The MSCI France Index captures the performance of the large and mid-cap segments of the French market and represents about 85% of the equity universe in France.

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The MSCI Canada Index captures the performance of the large and mid-cap segments of the Canada market and represents approximately 85% of the free float-adjusted market capitalization in Canada.