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Equities Investment Outlook: December 2022

By Richard "Crit" Thomas, CFA, CAIA
U.S. Equities
TSI Crit Equities December 2022

US Equities

Globally, risk assets have moved into bear market territory and recession risks are high. We have been advocating a more cautious approach to risk assets, but are looking for opportunities to add risk where valuations allow us to look through near-term threats. 

We believe large cap equities will continue to struggle in the near-term. Weakening economic conditions are likely to weigh on earnings, as we believe that earnings estimates need to come down and it is likely that prices will follow. We are looking for an opportunity to increase equity exposure.

Right now, we are doing this through cheaper small and mid cap stocks. On a P/E basis they are the cheapest we’ve seen historically. Lower valuations or improving fundamentals would enhance the return prospects for large cap stocks. 

Looking at Growth versus Value, value stocks have significantly outperformed in 2022.

Value Versus Growth

There were a number of factors that contributed to this outperformance. To start the year, value stocks traded at the largest discount to growth stocks since 2000. The unexpected rapid rise in interest rates hurt longer duration growth stocks and helped some high-dividend payers like Utilities and sectors that benefit from higher rates like Financials. The rise in commodity prices was a big driver with the Energy sector being the largest performance contributor. But as we look into 2023, we believe that the playing field becomes more even, with the U.S. Federal Reserve Board (Fed) slowing, or maybe even halting, many of the trends that favored value stocks. We are holding a neutral posture between Growth and Value.

For more of our thoughts on domestic equities please visit our website at touchstoneinvestments.com

This commentary is for informational purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation to buy, sell or hold any security. Investing in an index is not possible. Investing involves risk, including the possible loss of principal and fluctuation of value. Past performance is no guarantee of future results.

Please consider the investment objectives, risks, charges and expenses of a Fund carefully before investing. The prospectus and the summary prospectus contain this and other information about the Funds. To obtain a prospectus or a summary prospectus, contact your financial professional or download and/or request one at TouchstoneInvestments.com/literature-center or call Touchstone at 800.638.8194. Please read the prospectus and/or summary prospectus carefully before investing.

Touchstone Funds are distributed by Touchstone Securities, Inc.*
A registered broker-dealer and member FINRA/SIPC.
Touchstone is a member of Western & Southern Financial Group
©2022, Touchstone Securities, Inc. 


crit thomas global market strategist

Richard "Crit" Thomas, CFA, CAIA

Global Market Strategist
Crit is responsible for examining and evaluating economic conditions, generating insights and providing a sharpened perspective on investment strategies for enriched portfolio construction.

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