Cyclical Stocks to Outperform as Inflation Drops to 3.5%: Barry Knapp’s 2023 Outlook

The Contrarian Investor Podcast – The Contrarian Investor Podcast gives voice to those who challenge a prevailing narrative in global financial markets (contrarianpod.com)Barry Knapp of Ironsides Macroeconomics rejoins the podcast to discuss his surprisingly sanguine view of the economy in 2023: Why cyclical stocks should outperform the technology and defensive sectors, and why he’s expecting inflation to drop to 3.5% by the second half of the year.Content Highlights* Inflationary recessions are different from deflationary ones. The last four were the latter. If there is a recession this year, it will be the former (02:18)* Earnings downside is limited in this scenario, by 5% based on what happened in similar situations in the past, and earnings should actually go up (5:56)* Tech margins should continue to be under pressure, but economically sensitive cyclical stocks should see margin expansion (10:50)* The US labor market has actually started to weaken considerably — and not due to Fed policy (12:18)* There have been some big adjustments in the labor market post-pandemic (16:47)* The ‘wealth destruction effect’ from tech stocks selling off is negligible (27:35)* One point of concern: the deficit. This is where the implosion in wealth could affect things (32:59)* The coming budget battle in Congress is worth paying attention to (34:41)* The ‘higher for longer’ Fed interest rate hike thesis has gained traction. What this means for stocks (43:27)* Inflation: Expect 3.5% CPI by mid-year (47:37)Not intended as investment advice!Barry C. KnappManaging PartnerDirector of ResearchIronsides Macroeconomics [email protected]://www.linkedin.com/in/barry-c-knapp/@barryknappThis institutional communication has been prepared by Ironsides Macroeconomics LLC (“Ironsides Macroeconomics”) for your informational purposes only. This material is for illustration and discussion purposes only and are not intended to be, nor should they be construed as financial, legal, tax or investment advice and do not constitute an opinion or recommendation by Ironsides Macroeconomics. You should consult appropriate advisors concerning such matters. This material presents information through the date indicated, is only a guide to the author’s current expectations and is subject to revision by the author, though the author is under no obligation to do so. 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