U.S. Economy Shows Resilience Amid Recession Predictions For 2023

TL;DR

• U.S. GDP increased at an annualized rate of 2.9% in Q4, ahead of the 2.6% which had been projected
• Despite the positive news, two thirds of economists at the World Economic Forum in Davos believe that a recession is going to happen in 2023
• At a time when themes are becoming more and more important for investors, factor based investing can provide some exciting opportunities for investors to ride the waves
• Top weekly and monthly trades

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Major events that could affect your portfolio

The U.S. economy continued to show resilience in the face of numerous economic headwinds in Q4 2022, with GDP growing at an annualized rate of 2.9%. That’s down from the rate of 3.2% that it grew by in Q3, but ahead of the 2.6% which had been forecast by economists at Reuters.

The two consecutive quarters of positive growth split the year in half, with Q1 and Q2 both recorded negative GDP figures. While this is traditionally seen as the definition of a recession, the National Bureau of Economic Research hasn’t yet announced that we’re in one.

A tight labor market and relative strength in consumer spending are two of the main reasons that they’ve not yet made the call, but it’s not to say we’re out of the woods just yet.

The Q4 figures were bolstered by growth in consumer spending (the holiday season definitely helps with that), increased government spending at a federal, state and local level, higher expenditure on healthcare, utilities, housing and mining.

It may be the strongest result we see for some time. Fed chairman Jerome Powell has stated that the economy has not yet felt the full effects of the rate tightening cycle. This means that the pressure from higher borrowing costs is likely to start hitting businesses and consumers, which will surely put the brakes on growth.

It’s now looking very likely we’ll see a recession of some sort in 2023, with two thirds of economists surveyed at the World Economic Forum in Davos expecting one.

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Big Oil is set to announce record profits for 2022, despite louder protest from environmental activists. Most of the biggest energy producers in the world, including Exxon Mobil, BP, Shell, Chevron and TotalEnergies, are due to announce their annual figures over the next few days.

According to consensus estimates from Refinitiv, the figure is looking set to be big. Like, $190 billion big.

This is set to be the highest number ever, against a backdrop of record high energy prices and supply issues related to the war in Ukraine. With all of us paying a lot more for our energy and gas, it’s easy to understand a negative knee jerk reaction to the news.

But there’s an important point to keep in mind. These companies are all publicly traded.

That means that, in many cases, it’s regular people who are going to be benefitting from these outsized profits. This can be either as a direct result of being individual shareholders in the companies, holding ETFs that include energy producers or even as beneficiaries of a pension plan which invests in them.

For many investors, the stock prices in energy companies have been one of the sole bright sports in a year to forget for portfolios.

Ahead of the earnings calls, the oil giants are expected to reward shareholders from their bumper year. Dividends are expected to be higher than usual and there is also the potential for share buybacks to be implemented.

This week’s top theme from Q.ai

In 2022 we saw a major shift in the markets. For over a decade beforehand, growth focused tech stocks outperformed the rest of the market by a wide margin, with companies in the sector growing to become some of the most valuable in the world.

Prior to 2008, it was financial companies that offered some of the best performance for investors. In 2022, it was the energy producers that picked up the slack in investors portfolios.

The key point is that the same types of companies don’t do well all the time. There are cycles when certain factors work better than others. Wouldn’t it be awesome if there was a way to ride those factors to investment gains?

We’ve got you covered.

Because our Smarter Beta Kit does exactly that. It’s made up of five different factor based ETFs:

-iShares MSCI USA Value Factor ETF

-iShares MSCI USA Momentum Factor ETF

-iShares MSCI USA Min Vol Factor ETF

-iShares MSCI USA Size Factor ETF

-iShares MSCI USA Quality Factor ETF

Every week our AI analyzes massive amounts of data to predict how these factors are likely to perform in the upcoming week. It then automatically rebalances the Kit in line with these projections, to ensure it’s always up to date with the latest information.

In an investment environment where markets react so heavily to themes (Web3, AI, meme stocks, NFTs anyone?), it’s a way to ride the waves without needing to predict them yourself.

Top trade ideas

Here are some of the best ideas our AI systems are recommending for the next week and month.

Covenant Logistics Group (CVLG) – The shipping company is one of our Top Buys for next week with an A rating in Quality Value. Revenue grew 16.3% in 2022.

Laredo Petroleum (LPI) – The energy exploration company is our Top Short for next week with our AI rating them an F in Quality Value and Low Momentum Volatility. Earnings per share are up 5.07% in the last 12 months.

The Greenbrier Companies (GBX) – The transportation manufacturing company remains our Top Buy for next month with an B rating in Technicals and Low Momentum Volatility. Revenue was up 68.2% in the 12 months to November 2022.

Permianville Royalty Trust (PVL) – The restaurant company is our Top Short for next month with our AI rating them a C in Low Momentum Volatility and Technicals.

Our AI’s Top ETF trade for the next month is to invest in healthcare, industrials and US stocks,, and Taiwanese stocks and tech. Top Buys are the Invesco DWA Healthcare Momentum ETF, the Vanguard Industrials ETF and the Vanguard Total Stock Market ETF. Top Shorts are the iShares MSCI Taiwan ETF and the iShares Global Tech ETF.

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