How the Top Investors Are Trading the Market in a Recession
How the Top Investors Are Trading the Market in a Recession

By Andrew Moran

Wall Street is almost certain that the U.S. economy will slip into another recession in 2023. But market analysts have different opinions on what the financial markets will look like over the next 12 months.

Goldman Sachs slashed its target for the benchmark S&P 500 Index, to 3,600, projecting another 4 percent drop ahead. The Royal Rank of Canada anticipates a stock market bottom in the coming weeks, with a rally in equities in 2023. A Bank of America fund survey suggests full capitulation, carving out a path for a stock market rally in 2023 after the Federal Reserve pivots on interest rates.

So, how should investors trade this market over the next year, according to some of the most prominent names on Wall Street?

Carl Icahn

While speaking remotely at MarketWatch’s Best New Ideas in Money Festival last week, prominent investor Carl Icahn warned that “you can’t cure” inflation, explaining that “we printed up too much money, and just thought the party would never end. And the party’s over.”

Chairman of Icahn Enterprises, Carl Icahn, participates in a panel discussion at the New York Times 2015 DealBook Conference at the Whitney Museum of American Art in New York City, on Nov. 3, 2015. (Neilson Barnard/Getty Images for New York Times)

While his stock market outlook is not bullish, predicting that “the worst is yet to come,” he was asked what opportunities he sees in the equities arena. He offered two stocks: CVR Energy and CVR Partners.

The former is an energy company that has rallied about 124 percent year to date, while the latter is a fertilizer firm that has climbed approximately 48 percent this year.

“The fertilizer business, to me, is a great business today,” he said. “You need fertilizer if you want to eat.”

According to the latest 13F filing data, his top holdings outside of Icahn Enterprises consist of CVR Energy (11.44 percent), Cheniere Energy (3.58 percent), and FirstEnergy Corporation (3.49 percent).

Arthur Laffer

Whether the stock market has farther to fall or if it is poised for a rally, it really depends on the Federal Reserve and investors’ expectations surrounding monetary policy, said Arthur Laffer, the president of Laffer Tengler Investments.

“I think, overall, the stock market’s gonna do pretty well,” Laffer told The Epoch Times. “I mean, historically speaking, stocks actually do well, on a relative basis, over inflationary periods.”

According to Laffer, the equities arena will be adjusting to a “stockpickers’ market,” whereby balance-sheet investing becomes the top strategy.

“When you get markets like this, there’s a big difference between owning higher-quality stocks versus lower-quality stocks,” he said, adding that value stocks do well, but investors cannot get in “too deep” because they can also get crushed.

Ultimately, today’s environment is vastly different than what it was in, say, the 1970s, particularly because corporations possess a lot more information than they did 50 years ago. This allows companies, from Procter and Gamble to Microsoft, to model different scenarios and respond to the climate faster.

“This is where management really makes a difference,” he noted, “and their balance sheets really matter.”

Bill Ackman

Bill Ackman, another notable investor and CEO of Pershing Square Capital Management, told CNBC in September that he believes the annual inflation rate will fall to between 3.5 percent and 4 percent in a year, adding that the “buy signal” will happen sometime in 2023.

Ackman may not have publicly recommended any investment strategy, but his $7.46 billion investment fund made plenty of adjustments in the first and second quarters.

His most notable action was selling his 11.21 percent stake in Netflix, 13F numbers show. Ackman also reduced his positions in several service-sector brands, including Chipotle Mexican Grill, Hilton Worldwide Holdings, Domino’s Pizza, and Restaurant Brands International. But he did add to his stake in Canadian Pacific Railway.

With consumer demand slowing down, Ackman might be preparing for the service sector to take a hit amid a possible economic downturn in 2023.

Peter Schiff

It is no secret that Peter Schiff, the president and CEO of Euro Pacific Capital, is a gold bug. The most recent 13F filing from the second quarter suggests that his firm increased its holdings in Barrick Gold, Agnico Eagle Mines, Royal Gold, and Pan American Silver.

But Schiff has also recommended investing in recession-proof assets, particularly in companies that “sell products and services consumers have to buy, not just what they want to buy.” Food, crude oil, and tobacco are just some examples, according to Schiff. Euro Pacific Capital built more positions in British American Tobacco, Philip Morris International, Shell, BP, and Kellogg.

Still, with inflation as high as it is, Schiff thinks investors need gold for protection.

“What a lot of people don’t realize about gold is that it’s money. It is liquidity. It’s everything else that loses value in relationship to gold. Gold is a better form of money than anything governments have come up with to replace it,” he told the Fox Business Network earlier this month. “And in times like this, where we have inflation that’s going to run out of control, and central banks that are powerless to rein it in because they’ve created it—and they’ve created economies that are dependent on it—more and more people, including central banks, are going to be returning to gold.”

Warren Buffett

“A simple rule dictates my buying,” Warren Buffett wrote in a 2008 op-ed in The New York Times. “Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”

The legendary investor and the “Oracle of Omaha” has not been a fan of panicking during meltdowns or diversifying by buying a bunch of stocks.

According to second-quarter 13F filings, most of Berkshire Hathaway’s largest holdings are comprised of just six companies: Apple (40.7 percent), Bank of America (10.5 percent), Chevron (7.5 percent), Coca-Cola (7.79 percent), American Express (6.7 percent), and Occidental Petroleum (6.2 percent). According to the second-quarter 13f filing, Buffett purchased shares in Activision Blizzard, Ally Financial, and McKesson Corp. But he sold shares in General Motors, Kroger, and Verizon Communications.

So, Buffett could be staying the course and relying on companies with strong balance sheets that pay steady dividends.

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