ECONOMIC IMPACT. After more than a year touting the risks of inflation, growth and recession many who have missed these negatives are now almost fully on board especially as earnings season has arrived. As mentioned in prior newsletters the TWO key indicators to confirm this is OIL < $90 and long-term interest rates steady or falling......both appear to be occurring. The last thing to adjust to recession which maybe readily apparent is corporate earnings. As we move through earnings reporting season we suspect that will get baked in. Lastly, later in the month its likely the FED will raise rates another 75 basis points putting the icing on the cake for recession. Expectations for rate cuts not hikes are increasing in 2023, signaling a turn in sentiment. Although we are on fence in this regard the worse it gets recession wise today the more likely that may happen. Our base case is for the FED to be on hold even if they do temper rate hikes as recession takes hold because it may take time for inflation to abate.
INVESTMENT IMPACT. The implications for slower rate hikes or even cuts as consensus turns to recession is a shift back growth stocks maybe in cards. We have already created a list of names to own as we adjust models possibly as we head into Fall that shifts exposure from Healthcare to Tech./cyclicals, but await further confirmation on our theory. Until then we remain highly exposed to healthcare and with elevated cash levels.
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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