ANNUAL OUTLOOK • DECEMBER 16, 2022
Hello I’m Keith Lerner here to give you a brief overview of our annual outlook.
The past year has been one of the most challenging in history for capital markets. Pain was felt across the board as stocks and bonds had significant declines. Looking ahead, we see three keys to navigating 2023.
Remain defensive. Recession risk is elevated and equity and credit valuations are not attractive. Therefore, we have a tilt to fixed income and are focused on high quality bonds.
Next, remain tactical. We expect dramatic moves to the upside and the downside to continue. This should offer investment opportunities to increase and decrease portfolio risk just as it did over the past year.
Finally, remain open-minded. The post-pandemic backdrop is unprecedented. So, the historical playbook may be challenged, and investors should remain flexible and be prepared to adjust as the data changes. For the economy, the focus is set to shift from elevated inflation to fading growth. The most aggressive Central Bank timing in the past 40 years will weigh on economic growth in the new year and that’s should also ease inflation.
Europe will be among the weakest regions, but our base case is the US will also enter recession during the year.
In the equity markets, we expect choppy waters to continue. Valuations have been reset as stock prices have been under pressure across the globe. This is a positive for longer-term investors and has led us to boost our ten-year estimated returns. Yet in the near-term the risk/reward remains less favorable. This elevated recession risk, downside earnings risk, and valuations as mentioned are still not compelling. We expect to find better opportunities beneath the market surface -- such as the value style – and still see the US market in a better position relative to the rest of the globe.
We will be prepared to move from defense to offense later in the year, should better value emerge.
Moving to fixed income – bonds are back. 2023 will be a year to keep bond allocations simple and take advantage of the high-quality opportunities created over the past year. Yields are under the highest level in more than a decade. For passive income investors we see value in shorter maturities, but we also see long-term bonds providing important ballast as the economy slows.
So to wrap up – we see 2023 as a year to stay defensive; stay tactical, and stay open-minded.
To learn more about our views and recommended investment position, please take a look at our Annual Outlook publication. Your Truist advisor can help you learn more about how our investment themes will impact your portfolio. Importantly, this is a starting point. We look forward to keeping you informed on our views as the year unfolds.
Thanks for watching.
Truist Advisory Service's Keith Lerner, CFA, CMT, Co-Chief Investment Officer and Chief Market Strategist takes a few minutes to summarize important aspects of this year’s Annual Outlook - Three keys to 2023.