Looking back at 2022, investors faced new headwinds including skyrocketing inflation and Russia’s invasion of Ukraine turbulent global markets. In the coming year, investors will need to weather the fallout from the historic global tightening cycle. A recession is likely in the United States, but higher interest rates will curb inflation. All this as economic growth deteriorates, markets could stabilize in 2023.
Louisiana’s economy focused on energy, building infrastructure, transitioning to renewables, and healthcare innovation provides opportunities for investors to find and support local businesses.
National trends, local influences
The Fed’s Federal Open Market Committee has been moving towards a “neutral” interest rate policy, around 2.5%, to find a point that neither constrains nor stimulates economic growth. The broader effects of higher interest rates are meant to slow the economy in part by discouraging businesses and households from borrowing — and they’re working. Price-sensitive sectors, including real estate, saw a significant drop in activity. Instead of moving or refinancing mortgages to build new additions, homeowners are sitting tight.
Tightening of cycles usually first affects interest rate sensitive sectors. Later, they lead to job losses across the economy—sometimes up to 12-18 months after rates reach restrictive levels. Sectors including technology, residential real estate and manufacturers may experience further job cuts.
The United States is the world’s largest producer of energy, and Louisiana similarly has an energy-focused economy. The state tends to be counter-cyclical to the national economy as higher commodity prices usually help the energy companies in the state. However, the inability to attract skilled labor hinders its growth and productivity.
Epidemiological effects of long-term resilience
The pandemic and changing 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 an eye on minimizing those disruptions domestically.
Louisiana is a major beneficiary of infrastructure construction. The state receives money from the federal government to make improvements. In addition, the construction of LNG export facilities in Lake Charles is independent of the federal government. Current projects bring many economic benefits, including jobs. The state also has an important focus on renewable energy. The booming offshore wind business brings investment opportunities and new businesses to serve the growing industry.
Finally, healthcare is another high point because revenue is not as cyclical as it is in other sectors. For example, the Bio Innovation Center in New Orleans has been very successful and has led to the creation of new companies.
A global reset in valuations offers investors a broad range of viable options to help achieve their goals. Investors must set and revisit financial goals and then design investment portfolios to reach those goals.
Thierry Dufresne is the Managing Director and Head of Investments and Advisory in Louisiana for JPMorgan Private Bank. He has worked with JP Morgan for nearly 30 years working with ultra-high-net-worth individuals, foundations, and endowments to formulate and implement investment strategies designed to achieve their financial goals and objectives.
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