- Leo Grohowski believes that after a bumpy ride, markets should recover in the second half of 2023.
- He urged investors not to miss out on buying bonds, which are at their highest yields in a decade.
- Grohowski also favors US large-cap stocks, particularly high-quality names with strong fundamentals.
After last year’s stock market slump, it’s understandable that investors want to leave 2022 far behind in the rearview mirror. But Leo Grohowski warns investors not to get their hopes up too high just yet.
“The macro environment remains challenging, because in our view there’s at least a 70% probability of recession,” Grohowsi, who serves as the chief investment officer at BNY Mellon Wealth Management, told Insider in a recent interview. As of September 30, 2022, BNY Mellon Wealth Management oversaw $256 billion in total client assets.
With inflation cooling down, investors have grown increasingly optimistic about a potential Federal Reserve pivot towards looser monetary policy. But for the first half of the year, Grohowski expects a bumpy ride, believing that while the Fed may pause its rate hiking cycle it’s unlikely to completely pivot. “We think it’s a mistake to assume any rate cuts in 2023,” he said.
But once the recession and Fed tightening are out of the way, Grohowski is more optimistic about the second half of 2023, and believes earnings in 2024 should begin looking more constructive once again.
Key market areas for success in 2023
While the negligible returns in the fixed income market gave bonds a bad reputation over the past few years, Grohowski — along with many other investors — is emphasizing how attractive bond yields look now, as they’ve reached their highest levels in years.
BNY Mellon Wealth Management
Although the yield curve is currently inverted, meaning that short-term interest rates are higher than their longer-term counterparts, Grohowski is bullish on five- to 10-year municipal and investment grade corporate bonds.
“Cash and two-year and short paper do look attractive, but they should still be viewed to me more as a parking spot than a permanent allocation for investors with a longer-term time horizon,” he explained.
“Investment grade corporate bonds provide investors right now with an attractive spread over treasuries and, like muni spreads, they could widen out a bit as there become more concerns about the economy,” Grohowski continued, adding that for this reason, investors should be careful not to go too overweight in this space. On the other hand, Grohowski believes that high yield spreads, which look “very attractive” now, could weaken along with economic growth in 2023.
On the equities side, Grohowski favors US large-cap stocks, since they’re less sensitive …….