"Their recession outlook was predicated on energy instability, and they were able to manage through the winter as regular citizen rationing of energy actually proved to be very powerful," Kennedy explained. While the US will likely face a recession this year, one key catalyst is that Europe seems to have avoided one altogether. Kennedy is bullish on European equities, which he said have already rallied 15% year to date, or 20% in dollar terms. While the dollar is traditionally viewed as a "safe-haven" asset and thus might see some temporary outperformance in the event of a global recession, he still believes that it will normalize around lower levels. Kennedy also foresees opportunities in foreign assets as the dollar continues to weaken this year, after pandemic concerns drove valuations for the currency up last year. They're also cheap, since they've yet to recover from last year's selloff, unlike their mega-cap peers. Kennedy is also bullish on mid-cap US equities, a cohort of assets which generally create free cash flow and are shorter duration. Our biggest initiative is to help investors understand that growth is not just the most long-duration tech assets that exist," Kennedy said, specifying that his investment horizon lasts six to 12 months. "Overall, our bias is to lean into growth here, but we want to do it at a reasonable price. He also likes healthcare, since the sector is relatively inexpensive and traditionally defensive. Within equities, at the sector level Kennedy currently favors industrial and reasonably-priced technology stocks. "So I think this is the time to really want to be locking in those yields." 5 other high-conviction investment ideas "So reinvestment risk for clients, especially the ones with long investment horizons, becomes a bigger risk than duration risk, where they were scared to own the bonds," Kennedy said. The next step for the central bank would be to pause any monetary actions, before it begins cutting interest rates again. This makes sense if the Federal Reserve is indeed done with its rate-hiking cycle, as Kennedy believes. "But what I want to say to clients is, if you really believe 5% is so attractive, why don't you lock it up for three, four, five years by buying an investment-grade or a municipal bond?" he added. "Because for a long-term investor, cash is generally not going to help you get where you want to go relative to your goals."Īt around 5%, Kennedy agrees with his clients that cash yields currently look very attractive. "Our highest-conviction idea is just taking cash and getting it invested in fixed income," Kennedy said, adding that his clients are the most overweight cash they've been in the last 10 years. The only question is where they should invest it. While most investors have some equity exposure, they've also raised a lot of cash in the past two years. The next step is to figure out what's already in an investor's portfolio. Though this may seem contradictory, Kennedy said that this is actually very common late-cycle behavior. The recent banking crisis will only serve to accelerate the economy's deterioration.īut despite these factors, risk assets are currently fully valued and fully priced into the market. Kennedy, who serves as the chief investment strategist at JPMorgan Global Wealth Management, which oversees more than $2.1 trillion in global client assets, believes that tightened macroeconomic conditions will inevitably lead to slowing growth, layoffs, and a recession later this year. "You should start there, because how you orient your portfolio really matters both based on what the market's offering and also what you already have in your portfolio."Īt the moment, the US economy has reached a late stage of the business cycle, where high rates have deterred businesses from borrowing capital, causing corporate profits and earnings to deteriorate. "It's a way to remove bias and allocate capital based on what the market offers you," he explained to Insider in a recent interview. But his highest-conviction idea is that investors should rotate out of cash into fixed income.īefore making any macroeconomic predictions, the first step to Tom Kennedy's investment process is figuring out what the market has already priced in.Kennedy's also bullish on equity sectors that fit into his "growth at a reasonable price" strategy.As the dollar weakens in 2023, JP Morgan's Tom Kennedy favors European and Chinese assets.Account icon An icon in the shape of a person's head and shoulders.
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