The coming year for investing may turn out to be better than many expect for stocks even though a recession appears likely, pros at Natixis Investment Management said Wednesday.
Even as storm clouds form and Wall Street bids stocks down in 2022, money managers see pockets of strength in fixed income and other areas of financial markets such as the energy, health care and financial sectors.
Managers are less optimistic about real estate, industrials and consumer discretionary investments.
“I’m bullish because everybody is bearish,” said Jack Janasiewicz, portfolio manager and lead portfolio strategist at Natixis Investment Management Solutions. “The downside is already reflected in the market.”
The stock market has been reacting negatively to a series of shocks since 2020 starting with the COVID-19 lockdown, supply chain woes, the invasion of Ukraine, and rapid interest rate hikes from central banks around the world.
While the labor market will soften in the coming year, Janasiewicz said he doesn’t see an extended period of inflation and slow growth in the vein of stagflation in the 1970s. He remained overweight on investment-grade credit headed into 2023. Volatility will likely continue until the Fed reaches its terminal rate, or its highest interest rates, which is expected to happen by the middle of 2023.
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Amber Fairbanks, portfolio manager at Mirova US, said she’s a “lite bull” for 2023, with a focus on sustainable energy. She sees less enthusiasm for “story stocks” with interesting business plans and red ink and a return to an emphasis on profits and basic business fundaments.
Michael Nichols, partner and portfolio manager of Harris Associates/Oakmark Funds, said stocks have typically risen about 20% two years after the 12 recessions in the United States since 1945.
Stocks such as Alphabet Inc. GOOG, -2.22% and Netflix Inc. NFLX, +0.94% are relatively attractive at current levels, according to Nichols, along with financial sector stocks including Bank of America Corp. BAC, -0.79% and Wells Fargo & Co. WFC, -2.19%.
“Banks are positioned to weather the downturn,” he said.
Separately, Natixis said a survey of 500 institutional investors that manage $20.1 trillion in 29 countries revealed that 85% believe the economy is or will be in a recession in 2023.
Fifty-three percent of institutional investors said they’re actively de-risking their portfolio with an emphasis on quality fixed income.
With supply chain constraints easing compared to a year ago, 57% said war ranks as the biggest threat to the economy.
Seventy-four percent of institutions agree markets will favor active
managers, “especially since the majority say their active investments have outperformed in 2022,” said Liana Magner, executive vice president and head of retirement and institutional investing for Natixis Investment Management in the U.S.
Most think inflation will stay elevated and that central bank policy alone will not be able to fix it, while nearly half agree an engineered soft landing is unrealistic.