In the bond portion of the portfolio, there are three areas that can offer value in 2023: Treasuries, short-term investment-grade corporate bonds, and agency mortgage-backed securities. We are currently restructuring bond holdings as a result. After decades of low rates, bonds now offer investors more attractive yields and total return.
We expect to remain defensively positioned within stocks as earnings expectations remain murky. To date, earnings and revenue are being enhanced by corporate America’s ability to raise prices for goods and services continually. Losing this ability creates a headwind for future earnings and stock prices. Fortunately, current stock valuations are more reasonable than they were one year ago. Health care, utilities, consumer staples and energy remain areas of emphasis in portfolios.
The Fed is trying to slow inflation while producing a soft landing (no recession) or a shallow recession. We expect to remain nimble as the investment landscape evolves in 2023 to meet the challenges ahead. As we look to the new year, Tandem remains committed to our principles of balance and diversification to combat volatility. Investors should remain fully invested to capitalize on dislocations and opportunities in the next business cycle.