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The Tidal Financial Group (Tidal) expanded rapidly over the last decade and encompassed multiple ETF related brands including Toroso Investments, Tidal ETF Services, and the ETF Think Tank. Going forward all activity will be unified under the Tidal brand as we become one company, dream, family, and platform focused on holistic ETF customer solutions.

Get Think Tanked Distilled with Russ Koesterich

The ETF Think Tank wrapped up its 2022 schedule with a revisiting guest, Russ Koesterich. He’s a portfolio manager at BlackRock and specializes in global allocation strategies. After a tumultuous year unlike any we have seen in decades, he returns to offer his thoughts on the current economic landscape and where the opportunities exist in the coming year.

Koesterich says the clear differentiator between this year and years past is that we’ve had to deal with inflation again for the first time in 40 years. There were supply chain disruptions and too much stimulus in the system, but the larger issue is that central banks were all way behind the curve. Investors shouldn’t assume that conditions are going to change, however, just because the calendar changes. This theme will carry forward into 2023 and he does not think that moving into a new year means investors should suddenly change their strategies.

Despite all the pessimistic predictions, Koesterich isn’t really in the bearish camp on the earnings front. He doesn’t believe that a hard landing is necessarily in store for the economy because balance sheets are still in pretty decent shape. Nominal GDP is still expected to rise in 2023 and he believes that corporate earnings can rise along with it. He also doesn’t see a massive spike in corporate defaults either, so there are some opportunities within the credit space.

Koesterich notes that investors should still be quite selective though. His team is still underweight duration, but is slowly adding some back in. Yields on the long end of the curve still look lower than they should be, but higher yields are still creating some good opportunities to improve portfolio income. He favors investment-grade and high yield right now but feels high quality could be a better play in 2023.

Koesterich also believes that the U.S. economy is going to prove more resilient than most people think. There is still about $1.3 trillion of excess savings on the sidelines with consumers still interested in “revenge spending”. The services side of the economy is still holding up incredibly well. Gas prices are down and that has the potential to be a huge positive for households. The job losses we’ve heard about in tech get the headlines, but there are still a lot of jobs waiting to be filled and a lot of places that drive the middle-income segment of the labor market will hold up really well.

Other key takeaways:

  • With more than $30 trillion in debt and the government about to spend $1 trillion annually on interest expenses, another credit downgrade isn’t imminent, but it will probably be coming eventually.
  • The real damage could come from QT and not interest rate hikes. We’re likely to end up seeing more train wrecks, such as the one we’re seeing now in crypto. Even with QT, expect the Fed to keep a bloated balance sheet for a very long period of time.
  • Koesterich believes the biggest surprise of the year was the Russian invasion of Ukraine. Investors may have seen inflation and interest rates moving higher, but Russia/Ukraine wasn’t on the radar.
  • In 2022, interest rate volatility was driving equity volatility. Treasury volatility has probably peaked, but equity volatility has not. If rate volatility declines, you could actually have a good year in equities.
  • Koesterich says he prefers to be closer to the U.S. on fixed income but sees some opportunity in European and Brazilian high yield. He also prefers the U.S. for equities right now. For international exposure, he’s really focused on individual names and doesn’t even want to recommend a country or sector. The COVID story in China will be interesting.

You can watch a replay of this virtual happy hour on our YouTube channel here. While there, subscribe to our channel to stay up to date on our latest content.

Disclosure

All investments involve risk, including possible loss of principal.

The material provided here is for informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Toroso nor any of its affiliates guarantees any rate of return or the return of capital invested. This commentary material is available for informational purposes only and nothing herein constitutes an offer to sell or a solicitation of an offer to buy any security and nothing herein should be construed as such. All investment strategies and investments involve risk of loss, including the possible loss of all amounts invested, and nothing herein should be construed as a guarantee of any specific outcome or profit.  While we have gathered the information presented herein from sources that we believe to be reliable, we cannot guarantee the accuracy or completeness of the information presented and the information presented should not be relied upon as such. Any opinions expressed herein are our opinions and are current only as of the date of distribution, and are subject to change without notice. We disclaim any obligation to provide revised opinions in the event of changed circumstances.

The information in this material is confidential and proprietary and may not be used other than by the intended user. Neither Toroso or its affiliates or any of their officers or employees of Toroso accepts any liability whatsoever for any loss arising from any use of this material or its contents. This material may not be reproduced, distributed or published without prior written permission from Toroso. Distribution of this material may be restricted in certain jurisdictions. Any persons coming into possession of this material should seek advice for details of and observe such restrictions (if any).

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Get Think Tanked with Russ Koesterich

Get Think Tanked with Russ Koesterich

The ETF Think Tank wrapped up its 2022 schedule with a revisiting guest, Russ

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