Market analysts at Societe Generale say a moderate recession in the U.S. in 2023 will force the Federal Reserve to change course in the second quarter.

The French bank said Thursday that it is making significant changes to its multi-asset portfolio ahead of the new year and is heavily focused on sovereign debt over stocks and commodities. The bank also said it is reducing its cash position to zero.

"Overall, expected return should be more positive than in 2022, with particular focus on Treasuries, EM and Credit. U.S. technology remains at risk and Chinese assets uninspiring," analysts said. "We believe the clear prospect of an imminent Fed pivot offers the opportunity to increase cheap quality credit and strongly re-gear our strategy towards cheap E.M. assets, from unhedged local currency bonds to (mostly) non-China Asian equities."

As for how high the Fed's rate will be, economists said that market expectations for a cap rate close to 5% would be appropriate. They said it would raise real interest rates to 1.5–2%.

As SocGen increases its exposure to government and corporate debt, it also cuts its commodity holdings slightly, to 9% from 10% in September. Gold still makes up most of its commodity position, but its share is down to 6% from 7% in September.

Analysts said they still view gold as a hedge against risk.

"Systemic risks are a common feature after a round of policy tightening of this kind," the analysts said. "Holding gold and CHF can help stabilize portfolio volatility, in our view."

Although the bank continues to maintain a strong position in gold, it remains bearish on the price in its outlook for next year. Gold prices are forecast to fall to an average of $1,500 per ounce by the third quarter of next year. However, prices are expected to recover by the fourth quarter and average around $1,650 an ounce.

The French bank also predicts a further improvement in gold prices until 2024, pointing to an average annual price of about $1,800 per ounce. Analysts believe prices will rise to $1,900 by 2025.