We position with a combination of defensive, value, and income opportunities, alongside select cyclicals that should perform well as and when markets anticipate the key inflections.


The near-term environment remains challenging.

  • Inflation is moderating, but it may not fall smoothly back to central bank targets.
  • The lagged effect of interest rate rises is likely to weigh on economic growth and corporate earnings.
  • We do not think that US equity valuations fully reflect the earnings contraction we expect this year.

But inflection points are likely as the year progresses.

  • History tells us that durable turning points for broad markets tend to arrive once investors begin to anticipate interest rate cuts, and a trough in economic activity and corporate earnings.
  • Inflection points are unlikely to be reached in unison. Some areas of the market will inflect sooner than others.
  • Dispersion between different geographical markets and sectors is likely to be elevated. We therefore think selectivity will be rewarded.

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.
  • Alongside these, we favor select cyclicals that should perform well as and when markets start to anticipate the inflections.

Did you know?

  • The S&P 500 fell 19% in 2022, its worst year since 2008. The tech-heavy Nasdaq fell 33%. Both indexes regained some ground in January 2023.
  • The Federal Reserve raised interest rates by a total of 425 basis points in 2022, and by another 25bps in February 2023.

Investment view

High inflation, rising policy rates, and slowing growth mean the near-term environment still looks challenging, in our view. But we recognize that some areas of the market will reach inflection points sooner than others. Dispersion is likely to be elevated, and we think selectivity should be rewarded. We position with a combination of defensive, value, and income opportunities, alongside select cyclicals that should perform well as and when markets start to anticipate the key inflections.


Main contributors: Vincent Heaney, Alison Parums


Content is a product of the Chief Investment Office (CIO).


Original report - How can I position for key inflections?, 6 February, 2023.