Market Returns
Recession is not yet fully priced in, so markets have further to fall next year. But watch for a buying opportunity in the second half.
This week we present six key investment views for 2023.
In Section I, we note that while recent inflation developments point to some supply-side and pandemic-related disinflation, they also point to potentially stickier inflation over the coming several months. The inflation, monetary policy, and geopolitical outlook remains sufficiently risky that an overweight stance towards equities within a global multi-asset portfolio is not justified, and we continue to recommend a neutral stance for now. This month’s Section II is a guest piece written by Martin Barnes. Martin, who retired from BCA Research as Chief Economist last year after a long and illustrious career, discusses the outlook for government debt and the possibility of an eventual crisis.
This week’s report takes a look at risk-adjusted return opportunities in US spread product.
The Fed’s tone has taken a decidedly dovish turn during the past week and, despite September’s hot CPI print, there is mounting evidence that a period of disinflation is coming. This makes the case for a pause in the Fed’s tightening cycle in Q1 or Q2 of next year.
Our preferred tactical global fixed income trades for the rest of 2022 into early 2023 are all expressions of our views on relative monetary policy shifts within the main developed market economies. These involve bets on a relatively more hawkish Fed and Bank of England versus a relatively more dovish ECB and Bank of Canada, while also betting on additional selling pressure on Italian government bonds.
Long-after-the-fact revisions to reported income, spending and savings data do not alter our assessment that a flush consumer will continue to support the US economy and allow S&P 500 earnings to surprise the bearish investor consensus.
Investors should go long US treasuries and stay overweight defensive versus cyclical sectors, large caps versus small caps, and aerospace/defense stocks. Regionally we favor the US, India, Southeast Asia, and Latin America, while disfavoring China, Taiwan, Hong Kong, eastern Europe, and the Middle East.