Investors are looking ahead to 2023—and with a cautious eye. Inflation is still mighty high and coming down exceedingly slowly, despite signs that it has peaked. Interest rates are climbing, and Fed officials promise to hold them steady for some time. The result could be a recession, which seems to be everyone’s base case for 2023. It’s a tough setup, but it doesn’t mean investors can’t find stocks that can withstand the trifecta of macro complications.
It isn’t easy, however. Oil and gas shares may make good inflation hedges, and their issuers have much cleaner balance sheets after a year of ample cash flows. But a recession will hit demand for energy—with oil down 42% from its 2022 high, the anticipation may already have—and their results may suffer. Grocery stores can withstand a recession and tend to have low leverage, but thin profit margins mean that rising costs can take a bite out of profits. Software stocks may have ample growth, but there are signs of a peak in enterprise spending, and higher rates have caused fast-growing but low-profit companies to fall out of favor.