According to one portfolio manager, the market has bottomed and everything is looking for stocks and bonds, which could grow by more than 10% by 2023. Jay Hatfield, CEO and portfolio manager Investors at Infrastructure Capital Advisors, told CNBC Pro that his bullish case depends on his expectations that inflation will “decrease rapidly.” “We expect 2023 to be a good year for both stocks as bonds offer double-digit returns in both asset classes that can occur when inflation and interest rates fall,” he said. Hatfield said he is more upbeat than other market strategists, who predict the S&P 500 topping 3,000 because they “believe that inflation is ‘entrenched’ and will take a long time to go away.” The S&P 500 is currently around 3,839. However, he said that expectation shows the “wrong lesson” that has been learned since the 1970s when inflation remained high due to the massive energy shocks of those years. He added: “The 70% energy shock that occurred in Q1 2022 has now completely reversed itself. “Additionally, housing prices are currently falling, suggesting that shelter costs will follow.” Hatfield expects the United States to avoid a “major recession” in 2023, thanks to the relative resilience of the economy and the reopening of the services sector. Hatfield predicts the S&P 500 will rise to 4,300 if 10-year Treasury yields return to 3%. Based on the current yield of 3.75%, the S&P 500 is “reasonably priced” at 3,800 – meaning no uptrend. Treasury yields have soared this year as investors continue to worry about the possibility of a recession and what that could mean for monetary policy. The ‘belief theme’ in 2023 Hatfield highlighted the “belief investing theme” that he predicts will be very attractive in 2023. One asset class he highlighted is preferred stock, which has characteristics of both stocks and bonds. In other words, they are traded on exchanges just like stocks, but like bonds, they are issued at par and pay dividends. They are like bonds in that when the value of the preferred stock goes down, the yield goes up. However, they often offer higher returns than other fixed income products and can be more risky. “We believe preferred shares are extremely attractive right now as most are trading at a discount of more than 20% off par. If we are correct, interest rates will fall next year on inflation. decline, preferred stock is likely to outperform most other fixed-income asset classes,” Hatfield said. The ICE BofA Fixed Rate Preferred Stock Index, which tracks the performance of fixed-rate preferred securities, has fallen about 14% in 2022. Its yield is around 7.3%. While Hatfield did not give any names, his firm manages the Virtus InfraCap US Preferred Stock ETF. Top holders include essential retail REITs, NuStar Energy master limited partnership, and DigitalBridge, which operates digital infrastructure such as data centers and cell towers. Hatfield is also optimistic about the real estate investment fund. “REITs are also attractive as the sector has underperformed the S&P this year due to rising interest rates and many of the beneficiaries of the post-pandemic recovery who have been unfairly punished during the sale,” he said. including retail, leisure and office REITs”. His company manages the InfraCap REIT Preferred ETF, which offers preferred securities issued by the Real Estate Investment Fund. It includes the likes of Digital Realty Trust, a data center investment fund, and Hersha Hospitality Trust, a REIT that invests in hotels.
