Markets were moved in a significant way by the Federal Reserve in 2022, as it implemented a campaign of monetary tightening to combat high inflation levels. Fed officials and economists expect rates to stay high next year, with reductions unlikely until 2024. But that doesn’t mean the Fed will remain the primary driver of the markets. Patrick Armstrong, chief investment officer at Plurimi Wealth, sees different financial drivers retaking the reins. “Next year I think it’s not going to be the Fed determining the market. I think it’s going to be companies, fundamentals, companies that can grow earnings, defend their margins, probably move higher,” Armstrong told CNBC’s “Squawk Box Europe” on Friday. “Bond yields are giving you a real return now, above inflation. So it’s a reasonable place to put capital now, whereas at the start of this year it didn’t make much sense. It was hard to expect a return above inflation where yields were.” The yield on the U.S. 10-year Treasury was at 3.856% on Friday, a rapid climb from 1.628% at the start of 2022. The yield on the benchmark note hit an all-time low of 0.55% in July 2020. Bond yields move inversely to prices.

“What happened this year was driven by the Fed,” Armstrong said. “Quantitative tightening, higher interest rates, they were pushed by inflation, and anything that was liquidity driven sold off. If you were equities and bond investors, came into the year getting less than a percent on a 10-year Treasury, which makes no sense. Liquidity was the driver of the market, [and] the liquidity, the carpet’s been pulled from underneath investors.” Armstrong did suggest that the U.S. may be “flirting with recession probably by the end of the first half of next year,” but noted that “it’s a very strong job market there, wage growth and consumption is 70% of the U.S. economy, so it’s not even sure that the U.S. does fall into recession.” Key for 2023, the CIO said, will be “to find companies that can defend their margins. Because that is the real risk for equities.” He noted that analysts have a 13% profit margin expectation for the S&P 500 in 2023, which is a record high. But inflation and Fed tightening can still present a challenge to that, Armstrong maintained. “I don’t think you can achieve that with a consumer that’s having their purses pulled in so many directions, from energy costs, mortgage costs, food prices, and probably dealing with a little bit of unemployment starting to creep up as the Fed continues to hike, and it’s designed to destroy demand,” Armstrong said. “So I think that is going to be the key inequities.”