How to Invest in 2023 As Stocks Suffer in a Recession: PIMCO

  • Investors need to reconsider tried-and-true strategies that lately have been anything but.
  • Bonds look much more attractive than stocks as the economy weakens, according to PIMCO.
  • Here’s how the firm says to invest in 2023 as interest rates peak and markets struggle.

After one of the worst years ever for the classic 60-40 stock-bond portfolio, portfolio managers at Pacific Investment Management Company (PIMCO) have gone back to the drawing board.

High inflation and a weak economy mean that investing is no longer as easy as splitting money between two historically reliable asset classes or leaning on the growth stocks that did so well for years, wrote Erin Browne and two other PIMCO portfolio managers in a mid-November note.

“Caution is warranted during a period of elevated inflation and an economic slowdown,” Browne wrote.

Recessions in the US and Europe are the $1.7 trillion firm’s base case as central banks around the world continue to tighten financial conditions. Higher interest rates will bring down corporate profits — not just inflation, Browne warned.

However, while the Federal Reserve hasn’t committed to the idea that it will soon pivot from its hawkish stance on monetary policy, PIMCO portfolio managers are optimistic that rates will peak early next year as both inflation and growth decline. That could cushion the blow of a downturn.

“If the Fed is able to pause or even cut rates in an environment of decelerating inflation, this could limit the depth of a US recession and chart a path toward a more normal economic environment,” Browne wrote.

Where to invest in 2023: Avoid stocks, bet on bonds

With the global economy on the brink of a recession, investors must manage risk and target the right asset classes to outperform. That means picking bonds over stocks, according to PIMCO.

“With interest rates higher amid a challenging macro environment, we see a compelling case for…

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