Global Equity portfolio outlook, positioning, and attribution as of 09/30/2023
September 30, 2023
- Resilience in some areas of the U.S. economy may have pushed out the near-term risk of recession, but multiple indicators still signal heightened risks for the economy.
- We believe the lagged impacts of various factors – including the sharpest set of Fed rate hikes since the 1980’s, tighter lending standards, and decelerating corporate profits growth – have yet to be fully felt and pose material headwinds to the economy in the coming quarters.
- Consumers have remained resilient so far this year, with respectable income and spending growth, but we see various risks to both income and spending ahead, including the resumption of student loan payments and depletion of savings cushions built up during the pandemic.
- In this evolving environment, we see significant risk to corporate earnings for the most economically sensitive parts of the markets.
- Internationally, Europe faces ongoing inflation and tight monetary policy while China continues to struggle with growth amid its post-lockdown reopening, but we believe Japan remains an international bright spot, with expansionary GDP growth, moderate inflation, and accommodative monetary policy.
- In our view, this evolving economic environment warrants a balance of exposures to defensive areas of the market as well as areas that should benefit if economic growth persists.
- We are avoiding early-phase cyclical U.S. sectors and, instead, are emphasizing both mid- and late-phase U.S. sectors that we expect will see less deceleration in earnings as economic growth slows, including overweights of Communication Services, Health Care, Consumer Staples, and Utilities.
- We remain underweight to international equities, as a whole, including underweights of Europe and emerging markets, but we maintain an overweight of developed Asia, where we see the greatest potential for economic resilience abroad.
- U.S. Real Estate
- Western Europe
- U.S. Utilities
- U.S. Consumer Staples
- U.S. Energy