U.S. Sector portfolio outlook, positioning, and attribution as of 12/31/2023
December 31, 2023
Outlook
- We see late-cycle conditions globally and a potential fork in the road for the U.S. economy in 2024: factors that have supported growth in recent quarters fading and we see more challenges for the U.S. consumer ahead, which raises the risk of recession, but we also see a realistic path toward a “soft landing” that could further extend the cycle.
- Temporary post-COVID factors that have helped sustain economic growth are fading, including record demand for labor, rebounding labor market participation, and above-trend consumer savings and wage growth.
- Our analysis suggests consumers have effectively spent down their savings cushion, the personal savings rate is now at lows not seen outside this cycle or the Great Financial Crisis era, and the three-year suspension of student debt payments has ended.
- A shift to less restrictive monetary policy could help limit the negative impacts of the Fed’s sharp rate-hiking cycle, but we believe it is very unlikely to kick off a new period of rapid economic expansion.
- Absent an unexpected reacceleration of inflation, we also see potential for a continued pullback in Treasury yields in 2024. Still, interest rates should remain a headwind to growth, and credit spreads could widen.
Portfolio Positioning
- In our view, this evolving economic environment warrants a balance of exposures to defensive areas of the market as well as areas that should benefit if economic growth persists.
- We are avoiding early-phase cyclical sectors, which we believe face the greatest risk to earnings amid slowing economic growth and given our view that a sustained reacceleration of growth is unlikely in the near-to-intermediate term.
- We are emphasizing both mid- and late-phase sectors that we expect will see less deceleration in earnings as economic growth slows, including overweights of Communication Services, Health Care, Consumer Staples, and Utilities.
Q4 Attribution
Positive Contributors:
Underweight
- Energy
- Materials
Negative Contributors:
Overweight
- Health Care
- Consumer Staples
Underweight
- Financials
Attribution Analysis is relative to the S&P 500 benchmark and was current as of the date specified in this presentation. A complete attribution report is available upon request.
The most recent complete presentation can be viewed here.
Any portfolio characteristics, including position sizes and sector allocations among others, are generally averages and are for illustrative purposes only and do not reflect the investments of an actual portfolio unless otherwise noted. The investment guidelines of an actual portfolio may permit or restrict investments that are materially different in size, nature and risk from those shown. The investment processes, research processes or risk processes shown herein are for informational purposes to demonstrate an overview of the process. Such processes may differ by product, client mandate or market conditions. Portfolios that are concentrated in a specific sector or industry may be subject to a higher degree of market risk than a portfolio whose investments are more diversified.
Holdings, Sector Weightings, and Portfolio Characteristics were current as of the date specified in this presentation. The listing of particular securities should not be considered a recommendation to purchase or sell these securities. While these securities were among WestEnd Advisors’ U.S. Sector holdings at the time this material was assembled, holdings will change over time. There can be no assurance that the securities remain in the portfolio or that other securities have not been purchased. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities presently in the portfolio. Individual clients’ portfolios may vary. Upon request, WestEnd Advisors will provide a list of all recommendations for the prior year.