BofA investment strategist Michael Hartnett’s brash (and correct) bearishness through 2022, combined with a unique, blunt writing style, make it almost impossible not to cover his year ahead forecasts in detail. His look ahead to 2023 also represents a tilt towards bullishness.
Most equity strategists’ 2023 outlook reports run between 50 and 150 pages. But Mr. Hartnett’s is only three-and-a-half pages, thanks to sentences like “BofA 2023 expected returns: copper >25%, gold 15-20%, US IG [investment grade debt] 12-13%, US 10-year Treasury 7-8%, oil 5-6%, cash 5%, US stocks 0%, US dollar -6 %.” It’s enough, however, to provide investors with a clear roadmap.
The strategist remains bearish for the first half of 2023 as U.S. economic growth slows into an economic ‘hard landing’ and recession. He recommends investors focus on longer-dated bond issues and defensive equity sectors with low debt levels for the first six months of the year.
Mr. Hartnett is much more bullish about the second half of 2023 as inflation peaks, the Federal Reserve backs off on rate hikes and growth begins to recover. Preferred investments include copper miners, industrials and U.S. small cap stocks.
Late 2023 may not be as positive for Canadian investors. The strategist makes specific reference to Canadian and Australian banks as sectors to avoid. He expects each country’s housing boom to slow and mortgage defaults rise. U.S. technology stocks are the other major pitfall to avoid in BofA’s estimation.
Mr. Hartnett’s tactical strategy for investors is typically blunt: “SPX nibble at 3.6k, bite at 3.3k, gorge at 3.0k”. The S&P 500 started Wednesday at 3958 so this advice amounts to begin buying small amounts of U.S. stocks when the benchmark falls 9 per cent, buy in larger amounts when down 17 per cent, and buy aggressively as it bottoms lower by 24 per cent.
-- Scott Barlow, Globe and Mail market strategist
This is the Globe Investor newsletter, published three times each week. If someone has forwarded this e-mail newsletter to you or you’re reading this on the web, you can sign up for the newsletter and others on our newsletter signup page.
The Rundown
Here’s what 21 portfolio managers and strategists are predicting for the TSX next year
Canada’s main stock index will rally in the coming year and move to a record high in 2024 as inflation pressures ease and provided an anticipated slowdown in the domestic economy is not too deep, a Reuters poll found. Over the next six months, however, most analysts who answered a set of separate questions expected corporate earnings to worsen as the economy weakens and begins to digest a rapid-fire series of interest rate hikes from the Bank of Canada. Here are the TSX levels they are predicting.
Other polls:
S&P 500 seen ending end next year up 6% after choppy first half
Global stocks to grind higher, lacklustre year ahead: poll
Japan’s Nikkei seen rallying 6% to key 30,000 level by mid-2023
Rates and recession: European shares face rocky start to 2023
Gold loves a crisis. Just not the current one
This should have been gold’s year. It sure seemed like all the pieces were in place – copious inflation, tumultuous financial markets, a world awash in turmoil. But gold’s reputation as a haven from market chaos and a hedge against inflation simply hasn’t held up in 2022. Looking well into next year, however, a positive setup for gold may be brewing, as Tim Shufelt reports.
Others (for subscribers)
Number Cruncher: As bank earnings approach, here’s how 10 TSX-listed banks stack up on valuations
Number Cruncher: These nine U.S. fossil fuel producers have had a banner year. Is it time to sell?
Wednesday’s analyst upgrades and downgrades
Tuesday’s analyst upgrades and downgrades
Tuesday’s Insider Report: Chairman invests over US$8-million in this beaten-down tech stock
Globe Advisor
Will Canadian crypto ETF providers keep funds open with losses mounting?
Six energy-dividend stock picks with bountiful payouts
Investors pull out of long-term mutual funds as market conditions deteriorate
Are you a financial advisor? Register for Globe Advisor (www.globeadvisor.com) for free daily and weekly newsletters, in-depth industry coverage and analysis, and access to ProStation - a powerful tool to help you manage your clients’ portfolios.
Ask Globe Investor
Question: It appears either inflation is peaking and declining somewhat and/or the economy is weakening. This seems to be a good time to start buying XBB. Would you agree?
Answer: XBB-T is the symbol for the iShares Core Canadian Universe Bond Index ETF. It’s had a dreadful year so far, down 11.7 per cent year-to-date as of Nov. 17. But after touching a five-year low of $26.21 in mid-October, the units have rallied. They finished on Nov. 18 at $27.40, up 4.5 per cent from the October low.
Was that the bottom? It’s too soon to know. More interest rate hikes are coming, and they could push down XBB again. But if we haven’t seen the bottom yet, we’re getting close. Starting to slowly accumulate a position now is a viable strategy.
--Gordon Pape
What’s up in the days ahead
Robert Tattersall will share his latest thoughts on what stocks in Canada could be bargains based on Ben Graham’s iconic ‘net-net’ working capital screen.
Click here to see the Globe Investor earnings and economic news calendar.
Your chance to participate
In an upcoming interview, the Globe and Mail’s investment reporter, Jennifer Dowty, will be speaking with BlackRock’s chief investment strategist Kurt Reiman. If you have a question for Mr. Reiman, email jdowty@globeandmail.com and indicate “interview question” in the subject line. We regret that not all questions may be fielded to our guest due to limited time.
Compiled by Globe Investor Staff