The energy transition involves a complex and dynamic set of changes in the way we do just about everything. While significant progress has been made in some quarters, considerable capital will be needed to fund the massive investment required over coming decades. We expect investors with a deliberate and thoughtful plan to invest in the transition across the risk/reward spectrum will be rewarded.
We entered 2023 with a view that a recession in some economies, namely the United States and much of Europe, was likely this year, and the recent banking sector stresses reinforce our confidence in this view. Investors should be disciplined in maintaining policy targets broadly, remembering the role allocations to stocks, bonds, and cash play in portfolios.
No. We continue to think investors should tightly manage risk by keeping equity allocations and bond duration in line with broad policy targets and resist the temptation to time the market.
Following no US bank failures in the last two years, two banks failed in the last three days—Silicon Valley Bank (SVB) and Signature Bank. As the situation evolved last week, investors, businesses, and regulators became increasingly concerned about SVB and risks to the broader economy. Over the weekend, US officials from the Federal Reserve, Treasury, and FDIC released a joint statement saying that all deposit holders at both banks will be kept whole, even their uninsured deposits, and the Fed established a new Bank Term Funding Program. In addition, the UK Prime Minister and Bank of England helped arrange the sale of SVB’s UK subsidiary to HSBC. Taken together, these actions significantly decrease contagion risks associated with the collapse of these two banks.
In this edition of VantagePoint, we explore the improvement in economic conditions, prospects for recession in the United States and Europe, the degree to which markets are pricing in reasonable economic and earnings prospects, and sensible asset allocation considerations.
Yes, it is likely that the “softish landing” implied by forward consensus earnings expectations will fail to transpire.
We expect global earnings growth will be below average next year, as prior interest rate hikes increasingly bite. With this backdrop, we expect value equities will outperform, Chinese equity underperformance will correct, and Healthcare may present an overweight opportunity.
We expect interest rates will increase in many developed markets, as implied by market pricing. But we think the Fed will hold rates in restrictive territory for longer than expected. We don’t believe any increases will prompt another European sovereign debt crisis.
In this edition of VantagePoint, we review three big questions that are central to the path of the markets: 1) Will the US Fed pivot away from aggressive tightening?; 2) Will China move away from its zero-COVID policy?; and 3) Will Europe successfully manage its transition away from Russian energy imports?
Given the uncertain economic and profit environment, have markets bottomed yet? In this edition of VantagePoint, we address this question by comparing current market conditions to those of historical bear markets, evaluating economic conditions to better understand near-term recession prospects, and considering how much further the market may have to go based on historical precedents.