Large-Cap Core Equity portfolio outlook, positioning, and attribution as of 03/31/2023
March 31, 2023
- We see continued risk of slowing economic activity tied, in part, to the Fed’s aggressive monetary tightening, and elevated stress in the financial system resulting, in part, from aggressive monetary policy has exacerbated the late-cycle challenges to growth.
- While headline data for some areas of the global economy remain sound, such as the U.S. employment and consumption, leading areas of the job market and reduced consumer savings suggest to us that the full impact of the Fed’s rate hiking cycle has yet to be felt.
- In this evolving environment, we see significant risk to corporate earnings 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.
- We are avoiding most early-phase cyclical 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 continued to add to late-phase sector exposure, with overweights of Health Care, Consumer Staples, and Utilities.
- We maintain allocations to the 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.
- Information Technology
- Health Care
- Communication Services
- Consumer Discretionary