Mid-2023 market outlook: What to watch and how to react

Kevin Kirkwood doesn’t have a crystal ball, but he doesn’t seem too stressed about it. Over 30 years into his career, the Chief Investment Officer at Alitis Investment Counsel has seen a lot of ups and downs in global economies and public investments, so when he talks about his firm’s projections for the months ahead, he’s notably calm.

That’s not to say that the coming months will be easy, it’s just that everything seems calmer when you take a long-term, big-picture perspective.

“I remember the first successful fund manager I saw back in 1992 — he had the nicest suit I’d ever seen and had earned some incredibly impressive returns. But he was a one-trick pony, and a few years later the wheels fell off. Investing isn’t just about getting the highest return, it’s also about looking at the risk taken to achieve those returns,” he says.

As lead manager for the Alitis Income and Growth Pool, the firm’s largest and most diversified investment fund, Kirkwood meets with other members of the Alitis Investment Committee informally every week and formally once a quarter to discuss current investments and future trends. Here are some of the highlights of this quarter’s meeting:

  • Interest rates and inflation are stabilizing: “Have we peaked? Maybe, maybe not. But we’re closer to the top than to the bottom now — I don’t think it’s going to go as high as it did in the early 80s,” Kirkwood says. We may not return to the extremely low pre-pandemic inflation rates, but rates similar to the early 2000s appear likely.
  • Recession warning: A moderate recession in the near future appears likely, but not as severe as the 1980s or 2008 — perhaps more like the early 2000s after the tech bubble burst. “That was a moderate recession in the USA that was bad for the stock market, but wasn’t as significant for average Americans,” Kirkwood says. Canadians need to be prepared for a slowdown on this side of the border too.
  • Real estate and mortgages continue to perform: The alternative investments at Alitis continue to perform well, despite rising interest rates and an unpredictable real estate market. Purchasing real estate at today’s interest rates is difficult, but for those with financing locked-in (like much of Alitis’ real estate exposure), now is a good time to invest. Also, as banks have started tightening their lending standards, nontraditional mortgages have brought in very good returns for Alitis.
  • Fixed income improvements: After 2022, one of the worst years on record for bonds, fixed income now offers an attractive return with far less risk than a couple years ago. “Recessions are generally good for bonds. Still, we are looking to shift towards quality debt securities with less credit risk.”
  • Stocks have higher risk: “The stock market generally has higher risk as recession approach. Decent returns are still possible, but they come with higher risk,” Kirkwood says.
  • China and Japan: “There are a lot of unknowns in China. The government has stopped publishing their youth unemployment data, which is concerning, and some property development firms are in financial difficulty. We don’t know the consequences of that yet or whether it will impact us, but it’s on our radar,” Kirkwood says. Meanwhile, Japanese stocks are looking much more attractive to investors for the first time in decades due to their valuation and cheap currency.

When the market is uncertain, two things help minimize risk: diversified assets and time in the market. That’s why Alitis invests long-term and diversifies its investment funds, like the Alitis Income and Growth Pool ,with a mix of assets including fixed income, mortgages, real estate, and stocks.

Find Alitis Investment Counsel in Campbell River at 101-909 Island Highway, in the Comox Valley at 103-695 Aspen Rd., in Victoria at 1480 Fort St., and online at alitis.ca. For more information, call 250-287-4933 or email info@alitis.ca.

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