Looking back to 2022, investors faced new headwinds, including high inflation and Russia’s invasion of Ukraine, which disrupted global markets. In the coming year, investors will have to navigate the fallout from a historic cycle of global tightening. A recession is likely in the US, but higher interest rates will keep inflation at bay. All that said, markets could stabilize in 2023 if economic growth deteriorates.
Louisiana’s energy-based economy, infrastructure development, renewable energy transition and healthcare innovation provide opportunities for investors to find and support local companies.
National trends, local effects
The Federal Reserve’s Federal Open Market Committee is moving toward a “neutral” policy rate of around 2.5%, a point that neither curbs nor stimulates economic growth. The broader effects of higher interest rates are meant to slow the economy in part by discouraging firms and households from borrowing, and it’s working. Asset-sensitive sectors, including real estate, have already seen a sharp drop in activity. Instead of moving or refinancing mortgages to build new additions, homeowners are sitting tight.
Typically, tightening cycles affect interest rate-sensitive sectors first. Later, they lead to job losses across the economy, sometimes even 12-18 months later, when interest rates reach restrictive levels. Sectors including technology, residential real estate and manufacturing could see more job cuts.
The United States is the world’s leading producer of energy, and Louisiana is also an energy-focused economy. The state tends to be countercyclical to the national economy, as higher commodity prices typically help the state’s energy companies. However, the inability to attract skilled labor is hampering their growth and productivity.
Epidemic implications for long-term resilience
The pandemic and changing geopolitical risks have raised critical issues in areas such as supply chain resilience, access to energy, food and other natural resources, and traditional and digital security. As we move into 2023 and beyond, there will be a renewed focus on stability and security across the global economy, with a focus on minimizing these disruptions at the local level.
Louisiana is a major beneficiary of infrastructure construction. The state receives funds from the federal government for the improvements. Additionally, construction of LNG export facilities in Lake Charles is independent of the federal government. Current programs bring many economic benefits, including jobs. The state also places an important focus on renewable energy. The booming offshore wind business brings investment opportunities and new companies to serve the growing industry.
Finally, healthcare is another important point because earnings are not as cyclical as in other sectors. For example, the Bioinnovation Center in New Orleans has been very successful and has led to the creation of new companies.
A global valuation reset presents investors with a wider range of viable options to help achieve their goals. Investors should set and review financial goals and then design investment portfolios to meet those goals.
Terry Dufresne is Louisiana Managing Director and Head of Investments and Advisory at JP Morgan Private Bank. He was at JP Morgan for almost 30 years, working with ultra-high net worth individuals, foundations and foundations to design and implement investment strategies designed to meet their financial goals and objectives.
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