IF THE INVESTMENT THEME for 2021 was the post-COVID rebound, and the theme for 2022 was bracing for inflation, think of 2023 as the year investors should buckle up for a downturn. “Certainly the odds have increased that we’re heading into a recession,” says Ramiz Chelat, a portfolio manager for Vontobel’s Quality Growth Boutique. In fact, a whopping 98% of CEOs polled in a recent survey by the Conference Board said they were preparing for a recession in the U.S. in the next year.
The engine driving those recession fears, ultimately, is inflation—which in turn has launched the Federal Reserve on a campaign of interest rate hikes that has threatened corporate profits and helped drive the stock markets into bear territory over the past year. There are glimmers of hope that inflation may finally be peaking, but the watchword for 2023 remains caution.
Still, where regular investors may just see pain, investing pros see opportunity. Investing in 2023 is “really about quality,” says Lori Keith, director of research and portfolio manager at Parnassus Investments—in other words, owning companies “that not only can weather a deeper, more prolonged recession, should we see that, but also [are] able to participate when we do finally see a reversal” of the Fed’s rising-rate strategy.
Spotting those quality stocks may involve a change in mindset, for amateurs and pros alike. Eric Schoenstein, a managing director and portfolio manager at Jensen Investment Management, says he’s been tweaking his thinking when evaluating stocks, focusing more on profit margins than revenue growth. With war in Ukraine and persistently high inflation, and likely more rate hikes ahead, “I don’t think this is an environment where top-line growth is as easy to achieve, [and] that’s going to be with us for a
