U.S. Sector portfolio outlook, positioning, and attribution as of 06/30/2023
June 30, 2023
- We continue to see late-cycle economic conditions, with ongoing deceleration in key leading economic data, despite continued strength in headline employment and personal consumption.
- Our economic cycle analysis suggests that the delayed effects of monetary policy tightening, tightening lending standards, and the rolling over of the profit cycle are all likely to be felt more acutely in coming quarters.
- In this evolving environment, we see significant risk to corporate earnings for the most economically sensitive parts of the markets.
- We expect earnings growth will continue to vary significantly across U.S. sectors in 2023, as is typical in the later stages off an economic cycle, 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 are overweight the late-phase, more defensive sectors including Health Care, Consumer Staples, and Utilities.
- We maintain allocations to the Information Technology, Communication Services, and Consumer Discretionary 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.
- Communication Services
- Health Care
- Consumer Staples