Global Equity portfolio outlook, positioning, and attribution as of 12/31/2022
December 31, 2022
- With the rapid evolution of this economic cycle, deterioration in some economic data along with the Fed’s aggressive monetary policy stance point to later-cycle economic conditions here in the U.S. and abroad, in our view.
- Some areas of the global economy remain sound, such as the U.S. labor market and services consumption, but we believe the full impact of tighter monetary policy has yet to be felt.
- In this evolving environment, we see increased risk to corporate earnings, particularly for the most economically sensitive parts of the markets.
- We expect earnings growth to vary significantly across U.S. sectors in 2023, as is typical when risk of recession is elevated, and we believe sector allocation will be key to investment outcomes in the coming quarters.
- Internationally, as global economic growth slows, we see continued risks for Europe tied to the war in Ukraine, and we expect headwinds for economically cyclical emerging markets, while we see developed Asia as a relative bright spot.
- We are avoiding early-phase cyclical U.S. sectors and, instead, are emphasizing sectors that we expect will see less deceleration in earnings and less margin degradation as economic growth slows.
- We have added to our late-phase, defensive U.S. sector exposures, with overweights of Health Care, Consumer Staples, and Utilities.
- We also maintain allocations to the U.S. Information Technology and Communication Services sectors, which we believe are attractive at this stage of the cycle given their lower revenue volatility and more secular-oriented growth profiles versus more cyclical sectors.
- 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. Health Care
- Developed Asia
- U.S. Information Technology
- U.S. Consumer Discretionary
- U.S. Industrials
- Western Europe
- U.S. Energy