On this episode of KayneCast, join host Jordan Greenhouse, Managing Director of Kayne Anderson Rudnick and Chris Armbruster, Portfolio Manager and Senior Research Analyst for the KAR Mid Cap Sustainable Growth Portfolio, as they provide a Q4 mid cap growth stock market review and examine the forces impacting the market as we move into 2023.
Mid Cap Growth Sees Improvements in Equity Returns
Looking at the 2022 stock market performance review, Armbruster sees signs inflation is either peaking or has already peaked. Commodity prices, shipping rates, and the M2 measure of money supply have all cooled. Armbruster contends “that the risk with inflation is somewhat asymmetrical to the upside, with readings of cooler-than-expected inflation having a stronger positive impact on the equity prices than signs elevated inflation would cause further selloffs.” He believes these factors played a role in improved equity returns in Q4 2022.
Armbruster observes that worries about slowing economic growth, rather than inflation, now hang over the market. Large companies such as Amazon and Microsoft have laid off thousands of employees and business conditions are weak, but as stocks react to potential market changes months before they occur, Armbruster believes “this economic weakness has been working its way into equity valuations for a long time now.”
Given the market’s months-long recession fears, Armbruster notes, “If we have a recession, it will be one of the most telegraphed recessions ever,” giving the market ample time to prepare. He also comments that as rates have increased, the market has moved away from “years of all boats being lifted by the low-interest rate tide,” and we are now in a market where he believes self-funding entities are well-positioned to thrive.
2023 Mid Cap Outlook – Looking Ahead
Armbruster suggests that mid cap growth equities will continue to underperform in the first part of 2023, but if a slowdown or recession occurs, he believes opportunities will arise that could experience meaningful outperformance over the long term. KAR remains energized by the potential to invest in these innovative companies moving forward.
Listen to the podcast to learn more about the performance of the KAR Mid Cap Growth Portfolio 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.