BCA Weekly Commentary 1/20/23: No Change in View
Updated: Mar 19
ECONOMIC IMPACT. Retail sales disappointment for December, layoffs and manufacturing contraction on top of Fed surveys of economic activity all support slowing economic activity going into 2023. Corporate earnings and now long-term interest rates reflect this less so earnings as we do not think the full effect of past rate hikes nor future ones are fully baked in. Having said that little has changed since our last update as we anticipate some some form of recession coming setting the tone of sustained slow growth in future. That continues to be our overall assumption. More have adopted a recession view although the magnitude is subject to debate.
INVESTMENT IMPACT. We continue to maintain yield vs growth orientation in models as we believe valuations remain elevated as we head into what maybe an ugly period of earnings revisions. Markets remain wholly dependent on Fed policy which appears to be continuing on rate hikes albeit nearing its end which may eventually cause a recession especially a an earnings recession. With this not appearing to change we seek yield to get paid to wait for better economic times in years to come. The significant appreciation in client accounts/models in new year has been driven primarily by falling long-term interest rates which effect yield oriented common and preferred stocks and bonds. This was part of the reason why we chose to shift focus these types of investments. Until we see a reversal of Fed policy its likely client models WILL NOT see a shift to growth.
We remind investors that going forward expectations for returns for the overall market over the next decade remain low as we expect well below returns vs history. Be that it may we are hopeful our models can improve on that going forward.
Our model portfolio performance has been updated as of the date of this newsletter.
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