Breaking News
Investing Pro 0
🚨 Our Pro Data Reveals the True Winner of Earnings Season Access Data

Wall Street hunts for recession plays to weather potential 2023 turbulence

Economy Dec 04, 2022 08:00AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: A Wall Street sign outside the New York Stock Exchange in New York City, New York, U.S., October 2, 2020. REUTERS/Carlo Allegri
 
US500
-1.04%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
JPM
+1.55%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BLK
-1.76%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By David Randall

NEW YORK (Reuters) -Investors are eyeing everything from the U.S. healthcare sector to UK stocks and gold as potential havens during a recession, as worries grow that the Federal Reserve's interest rate increases will bring on an economic downturn next year.

Gloomy year-ahead forecasts from Wall Street banks have piled up in the past week, although a strong November jobs report released on Friday undercut the case for an imminent slowdown in the U.S. economy.

JPMorgan (NYSE:JPM), Citi and BlackRock (NYSE:BLK) are among those who believe a recession is likely in 2023. While a downturn is not assured, strategists point to the Fed's hefty monetary tightening, a steep slowdown in the housing market and the inverted Treasury yield curve as reasons to expect that growth will stall.

Recessions are usually bad news for stocks, though some investors believe 2022's sharp decline in equities suggests a degree of slowdown has already been factored in. The S&P 500 has fallen as much as 25.2% from its all-time high this year, compared to an average decline of 28% the index has recorded in recessions since World War Two, according to data from CFRA Research. The index is down 14.6% year-to-date.

Nevertheless, many on Wall Street are increasing allocations to areas of the market that have a reputation for outperforming during uncertain economic times.

"When investors see a recession coming, they want companies that can generate income regardless of the business cycle," said Jack Ablin, chief investment officer at Cresset Capital, who expects a mild recession in 2023, followed by Fed easing.

In their 2023 outlook, strategists at the BlackRock Investment Institute recommended stocks in the healthcare sector, an area where demand is thought to be less sensitive to economic fluctuations. The S&P 500 Health Care sector is down around 1.7% year-to-date, handily beating the broader index's performance.

BlackRock said the firm also prefers energy and financial stocks, though it is underweight developed markets as a whole.

"A recession is foretold; central banks are on course to overtighten policy as they seek to tame inflation," the firm's strategists wrote. "Equity valuations don't yet reflect the damage ahead, in our view."

JPMorgan's analysts forecast a "mild recession" and expect the S&P 500 to test its 2022 lows in the first quarter of next year. Above-average valuations and Fed hawkishness make U.S. stocks unattractive in comparison with other developed markets, the bank said, naming the UK as its top pick.

BoFA Global Research expects U.S. equities to end broadly flat in 2023 but sees prices for gold rallying up to 20%, aided by a falling dollar. Raw materials such as gold are priced in dollars and become more attractive to foreign buyers when the greenback declines.

Citi, meanwhile, said recession fears and weaker earnings growth will hurt U.S. stocks in 2023 and advised clients to "treat rallies in U.S. equities as bear market rallies." By contrast, they are overweight China, expecting Chinese stocks to receive a boost from loosening COVID-19 restrictions and government support for the real estate sector.

Fourth-quarter earnings for the S&P 500 are expected to fall 0.4% compared with the same time period last year, before rebounding over the course of the year and hitting a 9.9% growth rate in the fourth quarter of 2023, according to Refinitiv data.

Investors in the coming week are awaiting economic data on the U.S. services sector, which grew at its slowest pace in nearly 2-1/2 years in October.

Not everyone believes that recession is a given. Signs of ebbing inflation have fueled hopes that the Fed may tighten monetary policy less than expected, supporting a rebound in the S&P 500 that has buoyed the index from its October low.

Lucas Kawa, an asset allocation strategist at UBS, believes stock prices are already factoring in recession risk. He expects some of the factors that hurt markets in 2022 - including weaker growth in China and Europe – to reverse next year, supporting asset prices.

"There's a good chance that 2022's headwinds are going to turn into 2023's tailwinds," he said.

Garrett Melson, a portfolio strategist at Natixis Investment Managers, expects a so-called soft landing in which the U.S. economy grows at a moderate pace, with higher interest rates weighing on consumers without completely squashing spending.

He is bullish U.S. small-cap stocks, which he believes have priced in a recession. The small-cap Russell is down some 16% this year.

"The market seems a little offside here with the consensus that a recession is inevitable," he said. "The path to a soft landing is probably wider than what the consensus viewpoint is right now."

Wall Street hunts for recession plays to weather potential 2023 turbulence
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.
  • Any comment you publish, together with your investing.com profile, will be public on investing.com and may be indexed and available through third party search engines, such as Google.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
John Laurens
John Laurens Dec 04, 2022 10:29AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Funny because JPMorgan, Citi and BlackRock pretty much caused it. No justice in the US...
William Smith
William Smith Dec 04, 2022 10:29AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Biden's policies caused it.
John Laurens
John Laurens Dec 04, 2022 10:29AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
William Smith  they certainly paved the way.
jason xx
jason xx Dec 04, 2022 8:57AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Lol the UK is going into a 2 year recession but the bank recommends it over US... No
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email