- The likelihood of a recession has risen over the first half of 2023 as high rates are working their way through the economy, consumer purchasing power has diminished, and there is less access to credit. However, if a recession does occur, it is likely to be very mild, reflecting a stable economic footing. We expect the Fed will continue to keep hiking at the July meeting and will keep rates high for the remainder of 2023.
- The S&P 500 is currently in an earnings recession; however, consensus estimates identify Q2 2023 as representing the trough in profits before inflecting higher in future periods as margins begin to expand. We believe that pressure on corporate profits is unlikely to meaningfully reverse in the near term. We favor U.S. Equities, preferring Defensive Growth, Quality, and Profitability exposure.
- Sticky inflation on the services side will keep global central banks busy this year as all major central banks are poised to keep policy rates high as they look to quash inflation. Within fixed income we continue to favor equal to slightly long duration, a more laddered maturity structure, and higher-quality credit.