Navigating the Economic Terrain of H2 2023
As we edge closer to the midpoint of the year, many investors are making strategic adjustments to their portfolios. They are carefully gauging the market trajectory, potential macroeconomic risks, and predictions for the impending corporate earnings season.
Renowned investment manager Carmignac, in their H2 2023 outlook report, underscores the need to be equipped for a variety of potential scenarios. This caution comes from the increasing dependence of central banks on economic data. Despite signs such as steady wage inflation, a decreasing growth rate, and a lower equity risk premium, they believe it's too soon to confirm the conclusion of the 2023 monetary tightening cycle.
Analyzing Equity Market Trends and Volatility
Carmignac's experts draw attention to a significant drop in volatility within the equity markets, as indicated by the VIX index, hitting a three-year low. This decline, relative to its correlation component, sets the stage for astute stock selection.
Adding to this positive outlook, experts from Federated Herme anticipate an encouraging environment for the stock market in the latter half of 2023. They foresee earnings growth to spur a rise in stock prices.
Eyeing Growth Opportunities in the Tourism Sector
As summer sets in, many investors are seizing the chance to rearrange their portfolios, with some focusing on the potential boom in tourism stocks.
According to the eToro platform, the global travel and tourism sector, which contributes nearly 8% to the world's economy, is predicted to grow by 23% this year, reaching a whopping $9.5 trillion value. If accurate, this will be the third consecutive year that the sector exceeds a 20% growth rate.
The Growth-Value Interplay in Rising Interest Rates
The optimistic earnings predictions come amid a backdrop of increasing interest rates, a factor that tends to favor growth stocks more than value-based ones, according to Federated Hermes' analysis.
In terms of sector-specific opportunities, two defensive sectors stand out for H2 2023: Technology and Consumer.
Spotlight on Technology and Consumer Sectors
Technology (NYSE: XLK): Carmignac's analysts point out the opportunities created by artificial intelligence and the sector's overall positive evolution, given the current economic conditions with declining long-term rates and slowing growth.
Consumer: The focus here is on attaining a lower cost base and taking advantage of potential monetary policy changes. However, Carmignac states that the shift from countercyclical to discretionary consumption is not imminent. Disinflation, economic deceleration, and escalating price wars among retail groups shape the crucial factors.
Healthcare and Commodities: Potential Growth Sectors
Other promising sectors for H2 2023 include:
Healthcare (NYSE: XLV): This sector offers both short-term resilience and long-term growth prospects, according to Carmignac. Federated Hermes experts concur although they predict a more moderate growth pace compared to the strong expectations for technology and communications.
Commodities, like gold: Carmignac suggests that these could be appealing during periods of geopolitical uncertainty and heightened recession worries.
