What’s Ahead for Global Equities in 2023?
Macro factors, small caps and sector standouts in global equities are explored by Vaughan Nelson’s Chris Wallis.
Here are some highlights:
Economic Backdrop: In the first half, we're expecting to experience a sharper deceleration in inflation. We've already seen the peak in the US. It'll continue to decline, and probably be sub 5% by the time we enter the third quarter. But that's also going to come with a sharp deceleration in economic activity, which means we'll expect revenues to come down, margins to come down, and earnings expectations to come down in the first half in the US equity market. For the second half, there is a chance that we begin to see more stability.
US Dollar Strength: The strength of the US dollar has really pressured capital markets globally. And certainly, we're going to get to a point where the dollar's strength is going to sow its own demise. Whether that can occur in the first half of ’23 or the second half, we're certainly getting to the later stages.
Capitalization Ideas: For US investors looking at opportunity sets to allocate to either the large-cap, mid-cap, or small-cap space – until we finish unwinding the excess liquidity conditions, which means money is likely going to be coming out of the indices and therefore disproportionately hit the large-cap space – I think we are going to see small-cap and mid-cap provide better opportunities.
Sector Standouts: The only industry or sector in global equities that is still attractive is really the energy sector. We're going to have to deal with these energy shortages for a number of years. It's going to require upward price pressures to stimulate the investment that we need. That said, we've seen a significant move higher in energy equities and, therefore, some consolidation and volatility is likely in front of us. Otherwise, there's opportunities in every sector. But no one sector ex energy really stands out.
Energy Prices: Unless we experience severe economic weakness or a big decline in liquidity conditions that create deflationary pressures for fossil fuels, I really don't think energy consumers are going to have anything other than a temporary respite in fossil fuel prices.
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