On this episode of KayneCast, Managing Director of Kayne Anderson Rudnick Jordan Greenhouse speaks with Richard Sherry, Portfolio Manager and Senior Research Analyst for the KAR Global Dividend Yield Portfolio. Together, they review the performance of stock market during Q4 2022 and discuss how interest rates and a potential recession may impact the KAR Global Dividend Yield Portfolio heading into 2023.
Q4 2022 Stock Market Review: Equity Returns Improve as Hopes of a Fed Slowdown Emerge
The Fed signaled that they intend to slow their cycle of interest rate hikes, which resulted in some improvement in equity returns during Q4 2022. However, concerns the Fed will overreach with their hawkish monetary policy and spark a recession remain, although Sherry notes, “anecdotal evidence has been pointing to a peak in inflation; it has only recently started to crop up in official numbers. That has contributed to the belief that the Fed will potentially start slowing down their tightening cycle and thus help reduce the risk of a hard landing/recession.”
Sherry does note though that the 2023 economy is expected to slow, with inflation continuing to negatively impact consumer sentiment. However, consumer balance sheets remain relatively healthy, due in part to government stimulus related to Covid-19. Travel activity rebounded in 2022, and industrial activity was stable but cautious. Sherry believes that this “all bodes well to a soft-landing scenario for the economy and an improvement in equity returns during the fourth quarter.”
Possibility of Recession is Top-of-Mind for the Global Dividend Yield Portfolio in 2023
Sherry’s focus for 2023 is to prepare the KAR Global Dividend strategy for a potential recession. Fortunately, KAR focuses on businesses with resilient business models and strong balance sheets and seeks out companies that historically have performed well during recessions. Sherry comments that KAR always seeks “to be extra diligent about the resiliency of the businesses that we own. We also want to ensure that we are positively exposed to companies that would benefit from a pick-up in economic activity after a mild recession.”
Concerning higher interest rates, Sherry understands high rates can negatively impact high-yield stocks, but reports that “in 2022 the resiliency of the businesses that we own outweighed the negative impact of higher interest rates.”
Listen to the podcast to learn more about Global Dividend Yield strategy performance in Q4 2022, or read our complete 4Q 2022 Commentary, where KAR CIO Doug Foreman reviews market performance and the good and bad news as we look ahead to 2023.
This information is being provided by Kayne Anderson Rudnick Investment Management, LLC (“KAR”) for illustrative purposes only. Information contained in this material is not intended by KAR to be interpreted as investment advice, a recommendation or solicitation to purchase securities, or a recommendation of a particular course of action and has not been updated since the date of the material, and KAR does not undertake to update the information presented should it change. This information is based on KAR’s opinions at the time of the recording of this material and are subject to change based on market activity. There is no guarantee that any forecasts made will come to pass. KAR makes no warranty as to the accuracy or reliability of the information contained herein. Past performance is no guarantee of future results.