In the face of slowing profits and tighter monetary policy in 2023, investors should take a defensive approach and rotate into stocks of companies producing essential goods in healthcare, consumer staples and utilities, according to Richard Bernstein. Overseas markets and real assets also present opportunities amid the global profit slowdown. With the Fed determined to tame inflation even at the cost of an economic downturn, investors should not chase rallies in tech stocks or cryptocurrencies, but rather adopt a patient approach and wait for clearer signs of a market bottom before reentering.
Favor defensive sectors like healthcare, consumer staples and utilities
Richard Bernstein recommends focusing on defensive sectors in 2023 as corporate profits decline and the Fed keeps tightening policy, which historically is not a good combination for stocks. When profits are slowing, investors should follow the reliable economic principle that no matter what happens, people still need to eat, get sick and keep the lights on. Healthcare, consumer staples and utilities tend to outperform when profits decline, offering truly defensive exposure.
Look beyond U.S. markets for global opportunities
While the U.S. dollar has strengthened and America is outpacing the rest of the world, investors should avoid geographical myopia, Bernstein cautions. Measured in dollar terms, 70% of overseas markets outperformed the U.S. stock market last year. U.S. market fundamentals are actually among the worst globally, and tech, communication services and discretionary stocks account for its most speculative sectors.
Invest in real assets amid deglobalization trends
With globalization shrinking, massive reinvestment is required in energy infrastructure, manufacturing capacity, transportation and other key physical assets vital for America’s economic stability, Bernstein argues. After years of focusing on speculative themes like meme stocks and crypto, investors should pivot to productive real assets as onshoring picks up pace.
Facing slowing profits and continued tightening by the Fed, Richard Bernstein recommends getting defensive in 2023 by investing in healthcare, consumer staples and utilities stocks. Overseas markets and real assets also present opportunities. Rather than trying to pick bottoms in speculative assets, investors should wait for clearer signs of a turnaround.