INVESTING
he says of China ’ s war games display in reaction to House Speaker Nancy Pelosi ’ s diplomatic visit to Taiwan .
Stephanie Link , head of the investment solutions group at Chicago ’ s Hightower , is the portfolio manager for the firm ’ s large-cap core portfolio , which she describes as growth at a reasonable price , or a blend of value and growth . Like Detrick ’ s , her portfolio has been tipped toward value this year , and like Detrick she believes the financial industry is looking at a rapid slowdown right now .
But she does not see a soft landing in the future . Between now and the end of the year , Link says she expects consumers to do well as wages and jobs remain strong . They may even feel optimistic about the economy , especially if food prices come down a bit , she says .
“ But will the Fed engineer a soft landing ? I doubt it . They have a terrible track record . There have been soft landings just 10 % of the time when they ’ ve been raising interest rates ,” she says .
Right now Link says she likes investing in industrials , materials and discretionary sectors , at least through December . And she ’ s overweight in financials , but it ’ s part of her tilt toward value — and not part of a “ not-recession soft landing .”
“ And then I ’ ll see ,” she says . “ Between now and the end of the year can be an eternity .”
A Hard Landing Most Likely Ahead
Since the Fed is clearly continuing in its pursuit to beat down inflation , advisors say , it will be left to investment professionals to get ahead of the looming recession story . “ Inflation was the strongest risk factor coming into this year ,” Blackwell says . “ And as we look at the inflation numbers now , it ’ s really telling a story that we expected .
“ A lot of our conversations this year have been deconstructing the GDP number ,” he says . “ When we look at the real number , the net number that ’ s growth minus inflation , growth is very robust .”
With that in mind , he has strongly dedicated his investments to real assets and inflation-sensitive assets , like real estate , infrastructure and commodities , he says , adding that he just introduced a high-dividend equity exposure that bumped up dividends and gave clients a value tilt .
“ Right now we ’ re aggressively core , and pretty optimistic over the next 24 months , though it ’ s sort of an awkward world we ’ re living in where big numbers are punished and small numbers are celebrated ,” he says of the inclination to avoid big swings by being satisfied with more modest , but steady , results .
But there could be tacks in the road , thanks to the Fed doing its yeoman ’ s work against inflation . “ Did they go too far ?” Blackwell asks . “ We ’ ll know in six to nine months .”
“ Will the Fed engineer a soft landing ? I doubt it . ... There have been soft landings just 10 % of the time when they ’ ve been raising interest rates .”
— Stephanie Link , Hightower
Grecsek and other professional investors worry more about the Fed overtightening than the folks strolling Main Street . “ We are seeing wage pressures elevated , and that ’ s not good news ,” he says . “ We always acknowledged the [ two-year U . S . Treasury note and the 10-year note ] were inverted earlier in the year , but now they ’ re unambiguously inverted . … The odds of a Fed pivot is low , the odds of a soft landing is low , and the risk of recession is high .”
Grecsek says he used the market pullback earlier this year to upgrade the quality of investments across the board . “ And with a horizon of six to 12 years , now is an interesting time to be thinking of Europe ,” he continues . “ In five years , what ’ s happening in Europe now will make it a stronger place , not weaker . They ’ ll have a stronger-knit community and a greater NATO presence . But it ’ s going to be volatile on the way there .”
Like other investment professionals , he ’ s been leaning away from tech and growth domestically and more toward value , with healthcare and consumer staples front of mind .
When Clients Worry , Listen
“ Recession may or may not be happening , but it doesn ’ t matter a ton because people and the market are thinking it ’ s here or coming ,” says Chad Carlson , a CFP and president and chief investment officer at BDF Private Wealth in Itasca , Ill .
“ We all know the academic answer of what to do in downturns , but we need to have the patience to listen to the concerns of clients ,” Carlson says . “ We have to say , ‘ Yes , we see that , and here ’ s how it ’ s expressed in your portfolio .’”
This was the strategy he used in handling client phone calls over inflation concerns , especially with recently retired clients , he says . “ We ’ d turn that question around . Where do they think inflation will be in five years , 10 years ? And we ’ d remind them that their projection is for the next 30 years ,” he says . “ Once you get them there , they say , ‘ Oh , I don ’ t think it ’ ll be like this in five years . It ’ s temporary .’”
It ’ s the same with recession . “ Most of the time , clients are focused on the issue that ’ s in the front-page headline . If a median recession is a 20 % decline , we just had that but bounced back ,” he says . “ So it ’ ll have to be worse than that and not bounce back .”
In 2009 , one network news channels notably ran a story on how to effectively use Hamburger Helper to make ends meet , and Carlson says that kind of behavior often aligns with a turning point . “ There ’ s capitulation , the ‘ Hamburger Helper moment ,’” he says . “ Then it starts to get better from there . The markets decided it ’ s enough . We ’ ve seen that repeatedly .”
While not even close by financial apocalypse standards , that same channel is already producing segments on how to save money by canceling subscriptions , truly enjoying staycations for $ 30 a day and finding roommates .
So maybe there will be a soft landing after all .
44 | FINANCIAL ADVISOR MAGAZINE | SEPTEMBER 2022 WWW . FA-MAG . COM