The stock market has been moving, with many investors optimistic about the future. This optimism has been driven by the idea that the Federal Reserve, the ECB, and other central banks worldwide will do whatever it takes to support the market and shield the global economy from inflationary pressures.
The main factor contributing to this negative shift in sentiment has been the global release of resilient economic data, fueling speculation of persistent inflation that will run deep into 2023. The inflationary pressures have led many central banks to take a more hawkish stance, and there is now a growing acceptance in the market that they will maintain this position throughout the rest of 2023.
Money Managers Moving Toward Inflation Resistant Options
According to Reuters, many money managers are now shifting their focus away from the so-called growth stocks, such as technology stocks, and towards businesses that are better able to withstand inflationary pressures. These businesses that can withstand the pressures of inflation include banks, which stand to benefit from interest rate hikes, and consumer staple businesses that sell goods that can match the inflation rate.
Despite the shift in focus towards inflation-resistant investments, the technology sector has performed well in many markets worldwide. For example, in the US, the Nasdaq index, heavily weighted towards technology stocks, has gained around 12% over the past year. However, the rally in tech stocks lost momentum in February, as strong US jobs and consumer data fueled concerns about inflation and rising interest rates.
Analysts and Big Companies Pivoting To Value Stocks as They Brace For Inflation
According to Robert Schramm-Fuchs, a portfolio manager at Janus Henderson, investors should not expect a sudden pivot from central banks. Instead, he iterates that he is gearing his money towards buying shares in companies operating in mature industries left behind by the tech bubble, such as industry suppliers and miners.
Neil Birrell, an investment officer at Premier Miton, suggests that funds are adding to their positions in banks and energy companies, which have been among the winners in the last half-year. However, the volatile market conditions and increased risk aversion gradually lead to more cautious activity, with investors looking for firms that pay decent dividends.
This shift towards value stocks has been supported by a recent Reuters poll, which interviewed over 300 global asset managers. The poll showed that 70% of them believe that value stocks would be big winners in 2023, as opposed to growth stocks that have performed well in recent years. This sentiment is also shared by BlackRock, the world’s largest asset manager, which has tipped value stocks as a good addition to portfolios in 2023