Quarterly Coordinates Q1 2023- Time Is On Our Side

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Featuring: Lawrence V. Adam III, CFA, CIMA®, CFP® - Raymond James Chief Investment Officer

In our Quarterly Coordinates webinar, Chief Investment Officer Larry Adam borrows from the Rolling Stones to make the case for a long-term view.

With equities struggling and interest rates moving higher, investors are looking for relief. But time is on our side, yes it is. The last year or so has been challenging for investors, with many assets still in the red. But we see that red and want to paint it black. If our assessment is correct, we are past the bottom in both equity and fixed income markets, and we’ll probably see performance improve into this year and next. We believe markets and the Fed might get some satisfaction in the fight against inflation in the months ahead.

1. Introduction │ Time Is On My Side, Yes It Is

INSIGHT:
Federal Reserve (Fed) tightening, inflation, recession worries, and geopolitical fears caused volatility in the markets.

BOTTOM LINE:
We believe we are close to the end of the equity bear market, peak yields, Fed hawkishness, and we expect current volatility to lead to robust performance for most asset classes for long-term investors.

2. Economy │ Wild Horses Of Consumer Spending

INSIGHT:
While consumers are shifting spending from goods to services, overall spending continues at a healthy clip.

BOTTOM LINE:
Dwindling excess savings and softening job creation will lead to weakened consumer consumption. As such, we expect a mild recession in the second half of the year.

3. Monetary Policy │ The Fed Can’t Get No Satisfaction

INSIGHT:
Another reason for recession: the Fed will probably continue tightening, despite recent banking failures, as inflation has yet to decelerate quickly enough.

BOTTOM LINE:
Monetary policy acts with a lag of approximately one year. So, much of the economy is just starting to feel the impact of the first interest rate increases from about a year ago.

4. Fixed Income │ You Can’t Always Get What You Want, But Right Now You Could

INSIGHT:
With interest rates soaring to levels not seen since 2008, the script for bonds has flipped, and investors are enjoying more attractive yields.

BOTTOM LINE:
Higher interest rate opportunities may not last long. However, lower rates will enhance the returns of the sectors we favor, including Treasurys, munis, investment grade, and emerging market bonds.

5. International │ Jumpin’ Jack Flash In A Crossfire Hurricane

INSIGHT:
A weaker dollar, quickly improving supply chains, and easing commodities and labor costs should help support company margins.

BOTTOM LINE:
Equities tend to rally when the Fed ends its tightening cycle, inflation decelerates, and interest rates fall, assuming the Fed doesn’t overtighten and take the economy into a severe recession.

6. Equities │ Hey You Get Off Of My Cloud

INSIGHT:
Post-COVID China’s full growth boost to come and with our forecast for oil to end the year higher, we believe emerging markets will benefit.

BOTTOM LINE:
We still favor the US over other developed countries, as we remain in better position to face the looming global economic slowdown.

7. Asset Allocation│ We See Red And Want To Paint It Black

INSIGHT:
The last year or so has been challenging for investors, with many assets, from fixed income to equities, still in the red. If our assessment is correct, we are past the bottom in both markets.

BOTTOM LINE:
Short-term volatility may rattle markets, but a focus on diversification and asset allocation should help guide us through those threats.