As investors contemplate 2023’s market performance and look ahead to what’s possible next year, it’s déjà vu all over again, said some of Capital Group’s top investment managers.

“I’ve been here for the last three or four years,” said Martin Romo, Capital Group’s chief investment officer as part of an online panel last week. “And if I look back, it’s been an incredibly volatile period. Markets were down 40% in 2020, then up 110%, down almost 30% and now we’re back up 30%.”

In the face of that volatility, some things don’t change, he said, and that includes the necessity of being a long-term investor.

“We continue to focus on the horizon, whether it’s inflation, what the Fed’s going to do, how the economy is doing—it’s an interesting period, and it’s even more interesting given the variety of opportunities,” he said. “But there’s still a lot of uncertainty. There’s fear, there’s geo-political issues, there are volatile reactions in the markets. So it’s time to stay nimble and flexible.”

Climate-change industries, technology and pharmaceuticals are radically influencing economies around the world, and those should continue to attract investment. But there are also cyclical industries that Romo said he believes are being overlooked, with companies that are priced at attractive valuations and offer “a generational opportunity” to investors.

“It’s not an ‘either-or’ market, it’s an ‘and’ market,” he said.

On the fixed-income side, bond portfolio manager Pramod Atluri said December’s “block-buster” meeting in which the Fed said it was done hiking rates has set the stage for fixed-income investors to enter a new phase of opportunity.

“Inflation has been old news for some time now. It’s been almost a year and a half since inflation peaked at around 9%, and it’s been on a very steady declining path since then,” he said. “What’s confused the market this year is we had two really big headwinds.”

Those included the Silicon Valley Bank crisis in March and a 5% growth surge in the third quarter, he said. “So we’ve had a lot of volatile things going on in the marketplace, but when you step back and look at the trend, the longer-term picture remains intact,” he said.

The key questions, Atluri said, are when will the Fed start to cut rates, how fast will they cut and where will they stop?

The Fed has already projected three cuts in 2024 and four in 2025, which would bring the Fed rate to 3.75% over two years, he said. However, Atluri said he thinks the Fed will cut at a faster rate.

“We think core inflation is going to get down to 2.5% sometime by the end of next year, and maybe 2% the year after,” he said. “That implies the Fed may be at 3.5% by the end of next year. That’s 200 basis points of cuts. Much faster than what the Fed is currently guiding for.”

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