Top 10 ideas for 2023 from Bank of America
According to BofA analysts, in 2023 the U.S. economy will face a moderate recession, the Fed rate will be raised to 5.25%, and by the end of the year it will begin to decline. The bank is bearish about the first half of the year and bullish about the second half. The forecast for the S&P 500 is a drop to at least 3,600 points, where they see the optimal entry point. And ideally it’s 3,000-3,300. By the end of 2023 the bank expects the index to recover to 4000 points. With these points in mind, the BofA has given a list of “top ideas” for 2023:
📍30-year treasuries. First, because U.S. Treasuries have never in history fallen more than 3 years in a row. Second, capital will continue to flow into the debt market, which is already evident by the inversion of the yield curve.
📍 The inversion of the yield curve is getting steeper and steeper, which heralds an imminent recession. Therefore, we can assume that the Fed will soon switch from rising to falling.
📍Short the dollar, long emerging market stocks. In our opinion, this idea fits H2’23. As long as the Fed raises rates, the DXY will rise. In H2’23 with the move to easing the QE the dollar will gradually weaken. This is a definite positive for emerging markets as raw materials become more expensive and imports become cheaper.
📍Longing for Chinese stocks. The idea here is quite obvious. Gradual opening of the economy, settlement of problems in the real estate sector, settlement of relations with American regulators – there is a lot of pent-up positive, the potential is still accumulating.
📍Long on gold and copper. Among the justifications are the gradual opening up of China and hence the recovery of demand. As well as the energy transition and the need to hedge inflation risks. The best period to buy commodities is the DXY peak.
📍Combination of low-risk bonds (IG) of tech companies (yields from 5%) and junk Asian bonds with distressed debt (yields from 17%). The so-called barbell strategy also relies on the recovery of the Chinese economy.
📍Long for the industrial sector and small-cap companies. Here they cite structural changes in the economy as an explanation, the most controversial and unclear point.
📍Short on US IT companies. Continued rate hikes, balance sheet winding down, regulatory pressure – there will be a lot of negativity in tech stocks in 2023.
📍Short on private equity funds (like Blackstone or Apollo). The main negatives are credit, banking and real estate risks.
📍Long on EU banks. Here the positive is mainly embedded in fiscal stimulus from regulators. Europe’s economy is actively rebuilding, take the same energy transition. The banks at the same time have record lending rates in decades, interest income is growing, and there’s also support from regulators.
We will prepare a similar top, but already on the Russian market. There are not so many instruments in the domestic market, so it will be shorter, but it will not become less useful.