Taking a look at the May 2023 market outlook, IHT Wealth Management examines the recent banking challenges, labor market, and areas of opportunity for investors.
May 2023 Market Outlook for Banking Sector
As many saw in the headlines, the banking sector faced massive issues over the last few months. However, the big banks with the highest risk and worst operational execution have already been dealt with. Particularly, First Republic and Silicon Valley Bank both had unique circumstances that do not reflect the broader health of the banking system. Furthermore, while First Republic did not get closed until weeks later, it suffered the majority of its damage in the first few days of the banking crisis.
On the other hand, most of the other regional banks reported much smaller deposit declines and fewer liquidity issues. Generally speaking their deposit bases are have more insured depositors and face fewer concentration risks. Down the road, some of these regional banks may face issues generating high earnings, but the immediate liquidity issues are behind us.
May 2023 Market Outlook for Labor Market
The broader market faces recession risks as rate hikes and a pull-back in bank lending impact the American Consumer. At this point, a recession is nearly certain. The question is less whether “if” it occurs and more so pertaining to its magnitude. Will this trigger a hard landing or a soft landing?
Right now the job market is exceptionally strong, paving the way for a soft landing. However, if the banks start to be too restrictive in issuing new credit and the labor market starts to crack then the risks of a more severe recession elevate. The debt ceiling is also a concern. Historically the politicians have always come to an agreement, even if it comes at the eleventh hour – but the deliberating and time wasting does not inspire confidence for the markets.
Safety Bid for Tech and Stance on Energy
Technology is becoming a safe haven. Sector cash flows are exceptionally strong and most companies carry little debt, limiting the impact of interest rates. Furthermore, most of the tech sector has ample room for margin improvements.
Emerging markets look interesting – they are ahead of the United States in the battle against inflation. In fact, many South American countries are now pivoting towards rate cuts rather than rate hikes. China reopening after Covid is also significant.
Finally, energy is another space we are monitoring. While it is exceptionally volatile, companies in the space have become much more disciplined allocators of capital and have generally become much more shareholder friendly.
To reevaluate your inflation strategy in 2023, contact the financial advisors at IHT Wealth Management.