'Bumpy' road ahead for investors; avoid risk, buy emerging markets and commodities – Alpine Macro

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Alpine Macro warned investors on Wednesday that they should “strap in for a bumpy second half” of 2022, as the Federal Reserve continues to raise interest rates to get inflation under control and as an economic downturn looms for 2023.

“Expect U.S. financial conditions to continue to tighten and growth to cool more quickly than anticipated through year-end. Recession will be hard to avoid in 2023,” the firm stated in a note.

Alpine Macro added that “the Fed must create slack in the labor market” to tamp down inflation by cooling wage growth, a move that makes a “soft landing hard to engineer.” The firm added that the central bank’s aggressive rate-hiking “will take financial conditions into restrictive territory by year-end.”

“History shows that once the unemployment rate starts to rise, even from a low level, recession becomes difficult to avoid,” the firm added.

In this environment, Alpine Macro advised investors to “resist the temptation to re-risk” given the prospect of a slowing economy and declining corporate earnings. The firm predicted that “stocks could make new lows.”

“Stay underweight risk in general, and pare exposure to U.S. equities in particular,” Alpine Macro recommended.

Instead, the firm highlighted the value of putting money into commodity plays and emerging markets, “where value is more compelling than in the U.S.”

For more on interest rates and the economy, see what’s in store from the Fed.