Strategy Note /
Global

Enjoy The Downhill!

  • We sense a change in the air - the old bearish take is tired & in the price - the new, positive take is wired & not.

  • Expect falling macro volatility & growing stability to support risk assets in 2023 as headwinds turn to tailwinds

  • Flat US equity & a weak USD = best possible set up for non US equity OP; we like HY, Commodities & Climate & Innovation

Jay Pelosky
Jay Pelosky

TPW Founder & Global Strategist

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TPW Advisory
2 December 2022
Published byTPW Advisory

We sense a change in the air – a sense that the old stories of rising prices and case counts, of shortage & disruption have lost their bite & ability to move markets – it’s all in the price.

 

New stories, of falling prices and smooth delivery systems, a normal holiday season with plenty of inventory, are taking their place. The bearish take seems old, musty, tired – the positive outlook feels new, fresh, wired - the coming thing.

 

We expect falling macro volatility and a growing sense of stability to support risk assets as 2023 unfolds. Headwinds – inflation, rates, the dollar - turn to tailwinds.

 

Near term, we remain focused on our 3 keys for the 2ndH – the pace of the US inflation decline, the path of Europe’s energy prices & the success of China’s move off Zero Covid. All three are moving in the right direction.

 

Longer term, our focus is on continued high nominal growth & the coming global cap ex boom we expect as both Govts & corporates focus on the needs + opportunities inherent in dealing with the 3Cs of Covid, Climate & Conflict. The analogue is the US in 1995-2000, this time its global as our Tri Polar World builds out.

 

We struggled with the uphill climb of inflation, rates & the USD so enjoy the downhill run – while après ski is more our style the downhill comes to mind when thinking about the positive asset allocation outcomes stemming from falling inflation, declining rates & a weak USD.

 

A flattish US equity market coupled with a weak USD is the best possible set up for non US equity outperformance. Our model portfolios remain OW & focused on EAFE & EM equity, Small Caps, Value & Cyclicals in the US, HY credit in EM & US & commodities across the complex. Two areas of Focus for 2023 – Climate & Innovation – both bombed out, both candidates to replace Big Tech as the new Growth spots.