Large-Cap Core Equity portfolio outlook, positioning, and attribution as of 9/30/2022
September 30, 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 see little chance of a resumption of rapid and dynamic economic growth given the progress of the cycle to date and ongoing tightening of financial conditions.
- In this evolving environment, we see increased risk to corporate earnings and, more broadly, to the performance of particularly economically sensitive parts of the markets.
- We expect earnings growth to vary significantly across U.S. sectors during the remainder of 2022 and in 2023, as is typical during economic transitions and deceleration, and we believe sector allocation will be key to investment outcomes in the coming quarters.
- We are avoiding early-phase cyclical sectors and we are instead emphasizing sectors that we expect will see less deceleration in earnings and less margin degradation as economic growth slows.
- We have increased exposure to late-phase, defensive sectors by establishing overweight allocations to Consumer Staples and Utilities, while also maintaining an overweight of the Health Care sector.
- We remain overweight the mid-phase Information Technology and Communication Services sectors, which we believe will benefit from positive secular earnings drivers and see less deceleration in revenue and earnings growth than more cyclical sectors.
- Consumer Staples
- Real Estate
- Information Technology
- Health Care