Where would you put your money in 2023?
The Markets in 2023: A Look Ahead
The stock and fixed income markets have been performing well in the early months of 2023, as the disconnect between market expectations and the Federal Reserve continues. The S&P 500 index has reached new heights, while the Bloomberg U.S. Aggregate Bond Index has increased by 3% in January. While the equity market is being driven by promising economic data, there is still a significant amount of uncertainty, and the forecast remains cloudy. In this article, we will take a closer look at the current state of the markets, and what investors can expect in the near term.
The Federal Reserve and the Outlook for Interest Rates
The Federal Reserve is likely to keep interest rates higher for longer, until inflationary pressures subside or the impact of the rate hikes becomes too severe. Despite this, consensus estimates predict a mild recession in the middle of 2023, which is supported by the latest Institute for Supply Management’s Manufacturing PMI report. Despite this, earnings growth estimates for 2023 remain positive, and the S&P 500 is still trading at the same valuation levels as when the Fed Funds Rate was at its lowest. Investors must balance the risks presented by the current valuation levels and the slowing economic growth.
Portfolio Considerations for 2023
In the current climate, defensive positioning across equities, including in U.S. public infrastructure, is recommended for investors. This sector is expected to be relatively insulated from the rising costs of interest rates and inflation, as well as an economic slowdown. Within U.S. infrastructure, waste management, midstream pipelines, and utilities are preferred options. These industries are poised to benefit from increasing demand, and are expected to generate predictable cash flows during an economic downturn.
The markets in 2023 are facing a number of challenges, but also present a number of opportunities for investors. By balancing risk and reward, and making strategic investments in defensive assets such as U.S. public infrastructure, investors can safeguard their portfolios against market volatility and capitalize on the potential for growth.
Here are few examples of the companies from each category, this is not a investment advice.
- AECOM (ACM)
- Fluor Corporation (FLR)
- Waste Management, Inc. (WM)
- Enterprise Products Partners L.P. (EPD)
- Enbridge Inc. (ENB)
- Duke Energy Corporation (DUK)