Large-Cap Core 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., in our view.
- Some areas of the U.S. economy remain sound, such as the labor market and services consumption, but we believe the full impact of the Fed’s rate hiking cycle 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.
- We are avoiding 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 added to our late-phase, defensive sector exposures, 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
- Consumer Discretionary