Raymond James' Ten Themes for 2023
Friends – As we move into 2023, I wanted to continue an annual tradition and share some highlights from Raymond James’ “Ten Themes for 2023” from our excellent Chief Investment Officer, Larry Adam and his team.
This year, after one of the most difficult years for investors in decades, Larry and his team’s list is particularly timely, with helpful perspective on how to manage ongoing risks and position for recovery going forward. I’ve summarized their themes below. If you’d like to view the full presentation, you can view a replay of a recent webinar where Larry presented these themes.
- A Recession Months in the Making – The U.S. economy will likely face a mild contraction, with various industries rolling into recession at varying times. However, the depth of the decline will be contained by still strong consumer fundamentals. Over time, dwindling savings and weakening labor market conditions will stall the economy’s momentum.
- Monetary Policy – Despite economic momentum slowing, that does not mean that the Fed will be quick to pivot or implement interest rate cuts. Instead, the Fed is more likely to pause rather than reverse its aggressive pursuits by year end.
- Market Volatility – With more positive developments for many of the aforementioned risks, the headwinds of 2022 could shape up to be the tailwinds of 2023.
- Globalization or Deglobalization – The headlines overestimate the economic impact of shifting supply chains, and ultimately the competitive advantages (e.g., cost and production efficiencies) that are still intact. As such, we have a bias toward large, domestic multinational companies.
- Fixed Income – Throughout the year, economic struggles and easing inflation will lead to a lower 10-year Treasury yield. With many subsets of the yield curve inverted, investors should opt for quality rather than chase yield.
- Equities – Consecutive years of P/E contraction are atypical for the S&P 500, and with businesses already moving to cut costs, margins (and earnings) should hold in better than expected. Continued shareholder-friendly activities should also be a tailwind for equities.
- Industry Perspectives – Whether it be securing oil and natural gas sources, ensuring that key intellectual property (e.g., chips) and healthcare supplies are readily available, or protecting the power and internet grids from hackers—security will be a top priority for leaders of nations and businesses across the globe.
- International – As many of last year’s headwinds reverse, and with many emerging economies in a stronger position on a relative basis (e.g., China reopening, India’s resiliency), opportunities will develop for both equities and bonds in the emerging market space this year.
- Investment Principles: Back to Basics – Investors should let fundamentals drive portfolio decisions. Active managers could have superior performance due to the expectation for elevated dispersion across regions, sectors, industries, and even at the company-specific level.
- Psychological Dynamics – Some of the best opportunities in 2023 may require moving in isolation. A few of the more out of favor investments such as REITs and the Tech sector have more favorable valuations and fundamentals and may prove to be areas of opportunity in the year ahead.
If you’d like to discuss how these themes relate to your personal planning, let’s connect. I’m happy to help.
