The risk of a recessionary outcome has dropped considerably, says FS Investments' Troy Gayeski

28 Dec 2023 · over 2 years ago

The S&P 500 has gained about 25% for the year, but many people were not happy with the manner in which the gains were achieved.
The strength of the economy and the fact that valuations have not caught up to cyclicals and value investments suggests that the market may continue to perform well next year.
Diversification is important, especially when correlations and sensitivity between fixed income and equities are high.
Rotating into bonds may have run its course, and alternative strategies like private lending may be a good option.
Private lending offers higher rates, lower risk of a recessionary outcome, and the potential for higher returns than cash and fixed income.
If the economy remains strong and default rates remain low, earnings growth for the S&P 500 is expected to continue, possibly in the range of 6-8%.
However, multiple expansion seen in recent months may be sacrificed, and there could be some multiple compression.
The Federal Reserve is unlikely to cut rates aggressively, as they will be patient and ensure that inflation is under control.