Portfolio construction: Growth & cyclical stocks

Portfolio consultants Mark Cintolo and Sean Kaukas explain how to use their proprietary cyclicality vs. inflation framework to position equity portfolios for the current environment.

• The framework scores equity strategies based on their exposures to industries that have shown a historical tendency to outperform in the four possible scenarios for higher or lower growth and inflation.
• Recession is looking less likely in the near term as there are an increasing number of tailwinds that could drive reacceleration in real GDP growth.
• At the same time, the Federal Reserve may be nearly done with its rate hiking cycle, given the encouraging inflation data that has poured in this year. The items on Fed Chair Jerome Powell’s inflation checklist are all trending in the right direction.
• The outlook for strong economic growth and lower inflation may still be underappreciated by the market – but investors can reflect it in their portfolio allocations.
• Investors can implement this idea by diversifying their portfolio’s exposures across growth and cyclical sectors to potentially benefit from stronger than expected growth and lower than expected inflation.