A Constructive View on Growth Stocks
Jennison Associates views growth stocks capitalizing on big secular trends as positioned for prominence amid unsettled broader earnings conditions.
Investors should gain insight in 2023 into matters that inspired widespread uncertainty over the past year. Dr. Sushil Wadhwani, CBE, Chief Investment Officer at PGIM Wadhwani, highlights key questions for the coming year and explains how investors with the flexibility to capitalize on unfolding events can position themselves well no matter what answers ultimately emerge.
Pressing Questions
Whether the Federal Reserve will engineer a soft landing, with interest rate hikes arresting inflation without precipitating a recession, is a critical question given its implications for earnings and, by extension, equities. The short answer to that question, according to PGIM Wadhwani’s models, is probably not.
“We believe a recession in the U.S. is more than 70% likely, and that the probability of a recession in the Eurozone and U.K. is even higher than that,” he said.
Another important question for 2023 involves the approach investors should take to mitigate equity risk in their portfolios. Stocks and bonds traded together throughout much of 2022, revealing shortcomings in traditional long-only diversification efforts emphasizing bonds as an offsetting ballast to equities.
The investment flexibility afforded to strategies that can go long or short is likely to remain very important over the next 18 months, so how you want to trade going into a recession is different from coming out of it.
Answered with Agility
Flexibility and agility can help address both sources of uncertainty.
Based on its recession forecast, PGIM Wadhwani considers the ability to take short positions to be an important option in 2023, particularly in the first half. Should conditions improve before year’s end, the agility to change course and embrace long positions could be crucial as well. Likewise, directional trading and wider latitude regarding investment options can enhance efforts to diversify return sources.
Beyond the obvious questions, flexibility and agility can also demonstrate their value as surprises surface from the precarious geopolitical environment.
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The views expressed herein are those of investment professionals at PGIM Wadhwani at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. This commentary is not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services. This commentary does not constitute investment advice and should not be used as the basis for any investment decision. This commentary does not purport to provide any legal, tax, or accounting advice. PGIM Investments LLC is a registered investment advisor with the U.S. Securities and Exchange Commission. PGIM Custom Harvest does not provide tax, legal, or accounting advice. This material is for information purposes only, and is not intended to provide, and should not be relied on for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.
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