Our main scenario for the development of⦁the⦁US market is⦁a moderate recession in⦁the second quarter of⦁2023
Our main scenario for the development of⦁the⦁US market is⦁a moderate recession in⦁the second quarter of⦁2023
What does this scenario mean for different asset classes?
What does this scenario mean for different asset classes?
Given our expectations of a recession in the second and third quarters of 2023, the immediate outlook for the US stock market is vague to say the least. We do not expect stock indices to rise and are leaning towards US stocks being under pressure in 2023 due to falling profits and margins. This will be especially noticeable in the second half of 2023.
If we draw an analogy with previous recessions, shares will be able to move to growth only in 2024
If we draw an analogy with previous recessions, shares will be able to move to growth only in 2024
Eurobonds and gold look best in such a scenario. The real reversal of the Fed's rhetoric is the main reason for the growth of these assets in 2023. But before this reversal happens, these asset classes can also trade neutral or even in the red. A reversal of rhetoric, namely the gradual formation of expectations that the Fed will start easing policy, as we have already written more than once, may occur against the backdrop of a starting recession (a slowdown in the labor market, rising unemployment, falling consumer demand). However, in our base case, these assets will be the main beneficiaries of next year's growth.
And with investments in the US stock market now it is worth delaying
And with investments in the US stock market now it is worth delaying
Given the high uncertainty that could be in the US economy next year, it is best to invest in bonds through ETFs — to get high diversification and protection against the risk of defaults of individual issuers. Of the available and liquid instruments for investing in bonds through ETFs, we highlight the following.
1. Long-term US sovereign bonds (+1)
1. Long-term US sovereign bonds (+1)
TLT ETF. This fund aims to track the performance of the ICE US Treasury 20+ Year Index. The index itself consists of US Treasury bonds with a maturity of more than 20 years. In fact, this fund is a proxy for long-term US Treasuries. The duration of the fund is about 18 years, which is the highest duration among all available funds, which means the highest interest risks. The fund is growing amid expectations of a Fed rate cut and falling amid its growth. Fund commission — 0,15%. The fund pays monthly dividends - the current yield is about 2,4% per annum. For example, in 2019 the fund grew by 14,9%, in 2020 by 17,9%.
2. Investment grade US bonds (+1)
2. Investment grade US bonds (+1)
3. Stocks
3. Stocks
Among the stocks with growth potential in 2023, we highlight: Coca-Cola, Mondelez International, Darling Ingredients, Humana, CVS Health, Pfizer, Bristol Myers Squibb.
4. Gold
4. Gold
GLD ETF (+1). The most popular gold ETF. The fund exists as a trust whose shares are 100% backed by gold. The liquidity in this ETF is very high, and the fund commission is 0.4%. The fund does not pay dividends. In 2019, the fund grew by 17,8% (gold rose by 14,3%), in 2020 by 23,9% (gold rose by 24,2%).