Seeing the potential for opportunities in weaker markets

Looking back at 2022 investors faced new headwinds including high inflation and Russia's invasion of Ukraine disrupting global markets. In the year ahead, investors will need to navigate the fallout from a historic global tightening cycle. A recession is likely in the United States, but higher interest rates will rein in inflation. All that said, as economic growth deteriorates, markets could stabilize in 2023.

Louisiana's energy-focused economy, buildout of infrastructure, move to renewable energy sources, and healthcare innovation offer opportunities for investors to find and support local companies.

National Trends, Local Effects

The Federal Reserve's Federal Open Market Committee has been moving towards a "neutral" policy rate, around 2.5%, to find a point that neither restrains nor stimulates economic growth. The broader effects of higher interest rates are meant to slow the economy in part by discouraging companies and households from borrowing – and it's working. Rate–sensitive sectors, including real estate, have already seen a dramatic decline in activity. Instead of moving or refinancing mortgages to build new additions, homeowners are sitting tight.

Typically, tightening cycles first impact interest rate–sensitive sectors. Later, they lead to job losses across the economy—sometimes even 12–18 months after rates reach restrictive levels. Sectors including technology, residential real estate and manufacturers may have more job cuts.

The United States is the top global producer of energy, and similarly Louisiana is an energy focused economy. The state tends to be countercyclical to the national economy as higher commodity prices usually help energy companies in the state. However, the inability to attract skilled labor is hindering their growth and productivity.

Pandemic Impacts for Long-Term Resilience

The pandemic and shifting geopolitical risks have raised critical issues in areas including 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 those disruptions locally.

Louisiana is a major beneficiary of the buildout of infrastructure. The state receives funds from the federal government for improvements. Additionally, the buildout of LNG export facilities in Lake Charles is independent of the federal government. The current projects bring many economic benefits, including jobs. The state is also has an important focus on renewable energy. The burgeoning offshore wind business brings investment opportunities and new companies to service the growing industry.

Last, healthcare is another highpoint as revenues aren't as cyclical as they are in other sectors. For example, the New Orleans BioInnovation Center has been very successful and has led to the start-up of new companies.

The global reset in valuations presents investors with a broader range of viable options to help achieve their goals. Investors should define and revisit financial goals and then designing investment portfolios to reach those goals.

Terry DuFrene is Managing Director and Head of Investments and Advice for Louisiana for J.P. Morgan Private Bank. He has been with J.P. Morgan for almost 30 years working with ultra-high-net-worth individuals, foundations, and endowments formulating and implementing investment strategies designed to achieve their financial objectives and goals.

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