As the new year begins, we focus our investment ideas on defensives, value, income, and diversification. But a more favorable backdrop for markets should emerge as 2023 progresses and key inflection points come into view.
We expect markets to remain volatile in the near term.
- Inflation is still high, and the lagged effect of interest rate rises is likely to weigh on economic growth and corporate earnings.
- We do not think the economic conditions for a sustained equity market rally are yet in place.
- As the year begins, we focus our investment ideas on defensives, value, income, and diversification.
But inflection points are likely as the year progresses.
- History tells us that durable turning points for markets tend to arrive once investors begin to anticipate interest rate cuts and a trough in economic activity and corporate earnings.
- Investors with the discipline and patience to stay invested in line with longer-term goals should thus be rewarded.
- Those currently sheltering from volatility will need to plan when, and how, to head back into riskier assets.
Navigating these inflections will be key to investing success in 2023.
- We like value and defensives, including consumer staples and healthcare stocks. We also prefer high-quality bonds.
- More attractive opportunities to buy cyclicals and growth stocks may emerge later in 2023.
- For risk-tolerant investors looking to anticipate the inflection points today, we see select opportunities in early-cycle markets like Germany, and among the likely beneficiaries of China's reopening.
Did you know?
- The S&P 500 fell 19% in 2022, its worst year since 2008. The tech-heavy Nasdaq fell 33%.
- Energy was the best-performing S&P 500 sector last year, rising nearly 60%.
- The Federal Reserve raised interest rates by a total of 425 basis points in 2022.
Main contributors: Vincent Heaney and Alison Parums
Read the original report, UBS House View Briefcase: How should I invest in the year of inflections?, 9 January 2023.
This content is a product of the UBS Chief Investment Office