Investors have their eyes on everything from healthcare to United States to actions of UK and gold, as possible safe havens during a recession, as concerns grow that increases in interest rates in the Federal Reserve cause an economic slowdown in the coming year.
Grim forecasts from banks Wall Street for 2023 accumulated last week, although a strong November jobs data released on Friday undermines the view of an imminent slowdown in the US economy.
JPMorgan, Citi and BlackRock are among those who believe a recession is likely in 2023. While a downturn is not guaranteed, strategists point to the Fed’s sharp monetary tightening, a sharp downturn in the housing market and the inverted bond yield curve. Americans as reasons to expect that growth will stop.
Recessions are generally bad news for stocks, although some investors believe that the sharp decline in stocks in 2022 suggests that a degree of slowdown has already been considered.
The S&P 500 is down 25.2% from its all-time high this year, compared with an average 28% decline the index has seen in recessions since World War II, according to data from CFRA Research. The index accumulates a drop of 14.6% in the year.
However, many on Wall Street are increasing allocations to areas of the market that have a reputation for outperforming in uncertain economic times.
“When investors see a recession coming, they want companies that can generate revenue regardless of the business cycle,” said Jack Ablin, chief investment officer at Cresset Capital, who expects a mild recession in 2023, followed by a Fed easing.
In their 2023 outlook, BlackRock Investment Institute strategists recommended stocks in the healthcare sector, an area where demand is considered less sensitive to economic fluctuations. The S&P 500 healthcare sector is down about 1.7% year-to-date, handily outperforming the broader index.
BlackRock said the company also favors energy and financial stocks.
“A recession is announced; central banks are on track to tighten policy too much as they seek to tame inflation,” the firm’s strategists wrote. “Equity valuations do not yet reflect future damage, in our opinion.”
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