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New 2023 Market & Economic Outlook



New York - December 12, 2022 ~ The team at Infrastructure Capital Advisors has completed our 2023 Market Outlook analysis based on current and expected future market and economic conditions.


Economic Market Outlook Jay Hatfield InfraCap Infrastructure ETF

2023 Market Outlook:

We believe that the stock and bond markets have found a bottom and 2023 will be a strong year for stocks and bonds, with gains of more than 10%. Our target on the S&P is 4,500, which represents 18.5x estimated 2024 earnings of $245. There will be ongoing headwinds from misguided Fed policy and sluggish growth. Consequently, we project that value and income stocks will outperform again in 2023 with the Dow outperforming the S&P and Nasdaq. We expect the 10-year treasury to end 2023 in the 3% area as inflation declines.


  • We expect inflation to decline rapidly in 2023 as we approach the anniversary of the energy price shock. There is at least a 5% bleed-through of energy price shocks to Core PCE.


  • Certain sectors are more impacted with most crops having a 40% energy component.


  • Inflation is already well-contained as shelter accounted for over 100% of October core inflation and both housing prices and rents are currently declining (Case Shiller down 2% and rents down 1% over the last two months). The CPI shelter estimate has enormous lags due to outdated survey methodology that is only updated every 6 months.


  • The Fed continues to make major policy errors as it relies on lagging indicators such as CPI and the labor market to predict inflation vs. leading indicators such as the money supply and energy/commodity prices.


  • We expect the Fed to capitulate on their hawkish “entrenched” theory of inflation sometime during the first 6 months of 2023 just as they capitulated on their “transitory” theory of inflation in late 2021.


  • The Fed capitulation will produce a major stock and bond market rally and we expect both stocks and bonds to be up over 10% in 2023.


  • Since the balance sheet started to shrink the Fed has offset a significant amount of the roll-off through open market operations, lessening the impact of QT. The Fed has over $2.5 trillion of an overnight reverse repo that can be used to offset QT, while still shrinking the balance sheet. We expect that dynamic to continue in 2023.


  • The additional 100bp of Fed tightening is unlikely to have a large impact as long rates already reflect that level of increase.


 

InfraCap Predictions vs Reality for 2022

2022 Outlook Published 12/31/21:

The end of QE in 2022 is very likely to increase the equity risk premium for risky, unprofitable companies from as low as 20% to as high as 30-40%, causing continued pressure on stock prices for these companies.

  • The Dow trading at 18.5x 2022 EPS is likely to outperform the S&P trading at 21x with a material component of companies trading at ultra-high multiples (Tesla at 125x 2022) or losing money.


  • Treasury rates are not significant for high-risk, unprofitable or ultra-high multiple stocks as the equity risk premium is over 90% of the driver of valuation vs. less than 10% for the treasury component.


  • Cryptocurrencies are likely to remain under pressure as the Fed reduces its liquidity injections.


  • Defensive dividend stocks such as preferred stocks, utilities, REITs, and telecom services companies are likely to outperform.


 

2022 Actual Outcome as of 12/12/22


  • The Dow is down 4.62%, the S&P 14.53%, the Nasdaq 27.70% and Bitcoin 63.08%


  • We expect that there will be slow GDP growth in 2023 due to Fed tightening but no significant recession as the US economy is very resilient due to tailwinds from the end of the Pandemic and the 80% energy cost advantage the US has over the rest of the world. In addition, both housing and autos, which usually crash during a Fed tightening cycle, are insulated from large layoffs due to Pandemic-related shortages of inventory.


 

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ABOUT US


Infrastructure Capital Advisors, LLC (ICA) is an SEC-registered investment advisor that manages exchange traded funds (ETFs) and a series of hedge funds. The firm was formed in 2012 and is based in New York City. ICA seeks current income opportunities as a primary objective in most, but not all, of ICA's investing activities.


DISCLOSURE


This material is for informational purposes only. This is not an offer to buy or sell, or a solicitation of any offer to buy or sell any of the securities mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts, and other forward-looking statements, which do not reflect actual results, are valid as of the date of this communication, and are subject to change without notice. Information provided by third-party sources is believed to be reliable and has not been independently verified for accuracy or completeness and cannot be guaranteed. The information herein represents the opinion of the author(s), but not necessarily those of ICA, or its affiliates. Not for distribution to the public. Opinions represented above are subject to change and should not be considered investment advice. Past performance is not indicative of future results. The links to the fund fact sheets will provide standardized performance and risk disclosures. *30-day SEC Yield is a standardized yield calculated according to a formula set by the SEC and is subject to change.


FUND RISKS Investors should consider each Fund's investment objectives, risks, charges, and expenses carefully before investing. For a prospectus with this and other information about the Fund, please visit the Fund's webpage. Please read the prospectus carefully before investing.


ICAP Exchange Traded Funds (ETF): Investing involves risk, including possible loss of principal. An investment in the Fund may be subject to risks which include, among others, investing in equities securities, dividend-paying securities, utilities, small-, mid-, and large-capitalization companies, real estate investment trusts, master limited partnerships, foreign investments, and emerging, debt securities, depositary receipts, market events, operational, high portfolio turnover, trading issues, active management, fund shares trading, premium/discount risk and liquidity of fund shares, which may make these investments volatile in price. Foreign investments are subject to risks, which include changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations, and changes in currency exchange rates which may negatively impact the Fund's returns. Small and Medium-capitalization companies, foreign investments, and high-yielding equity and debt securities may be subject to elevated risks. The Fund is a recently organized investment company with no operating history. Please see the prospectus for a discussion of risks. Distributor, Quasar Distributors, LLC


PFFA Exchange Traded Funds (ETF): The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities. Preferred Stock: Preferred stocks may decline in price, fail to pay dividends, or be illiquid. Non-Diversified: The Fund is non-diversified and may be more susceptible to factors negatively impacting its holdings to the extent that each security represents a larger portion of the Fund’s assets. Short Sales: The Fund may engage in short sales, and may experience a loss if the price of a borrowed security increases before the date on which the Fund replaces the security. Leverage: When a Fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded. Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment. No Guarantee: There is no guarantee that the portfolio will meet its objective. Prospectus: For additional information on risks, please see the Fund’s prospectus.


PFFR Exchange-Traded Funds (ETF): The value of an ETF may be more volatile than the underlying portfolio of securities it is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities. Preferred Stocks: Preferred stocks may decline in price, fail to pay dividends, or be illiquid. Real Estate Investments: The Fund may be negatively affected by factors specific to the real estate market, including interest rates, leverage, property, and management. Industry/Sector Concentration: A Fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated Fund. Passive Strategy/Index Risk: A passive investment strategy seeking to track the performance of the underlying index may result in the Fund holding securities regardless of market conditions or their current or projected performance. This could cause the Fund’s returns to be lower than if the Fund employed an active strategy. Correlation to Index: The performance of the Fund and its index may vary somewhat due to factors such as Fund flows, transaction costs, and timing differences associated with additions to and deletions from its index. Market Volatility: Securities in the Fund may go up or down in response to the prospects of individual companies and general economic conditions. Price changes may be short or long-term. Prospectus: For additional information on risks, please see the Fund’s prospectus.


AMZA Exchange Traded Funds (ETF): The value of an ETF may be more volatile than the underlying portfolio of securities the ETF is designed to track. The costs of owning the ETF may exceed the cost of investing directly in the underlying securities. MLP Interest Rates: As yield-based investments, MLPs carry interest rate risk and may underperform in rising interest rate environments. Additionally, when investors have heightened fears about the economy, the risk spread between MLPs and competing investment options can widen, which may have an adverse effect on the stock price of MLPs. Rising interest rates may increase the potential cost of MLPs financing projects or cost of operations, and may affect the demand for MLP investments, either of which may result in lower performance by or distributions from the Fund’s MLP investments. Industry/Sector Concentration: A fund that focuses its investments in a particular industry or sector will be more sensitive to conditions that affect that industry or sector than a non-concentrated fund. Short Sales: The Fund may engage in short sales, and may experience a loss if the price of a borrowed security increases before the date on which the Fund replaces the security. Leverage: When a Fund leverages its portfolio, the value of its shares may be more volatile and all other risks may be compounded. Derivatives: Investments in derivatives such as futures, options, forwards, and swaps may increase volatility or cause a loss greater than the principal investment. MLPs: Investments in Master Limited Partnerships may be adversely impacted by tax law changes, regulations, or factors affecting underlying assets. No Guarantee: There is no guarantee that the portfolio will meet its objective. Performance Data: Performance data quoted backtested results. Backtested Performance was derived from the retroactive application of a model developed with the benefit of hindsight. Backtested performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Investment return and principal value will fluctuate so your shares, when redeemed, may be worth more or less than their original cost. Please visit https://www.virtus.com/products/virtus-infracap-us-preferred-stock-etf#shareclass.742/period.quarterly for performance data current to the most recent month-end and the Fund’s standard performance information. You should consider the Fund’s investment objectives, risks, charges, and expenses carefully before investing. For PFFA, PFFR, and AMZA funds, contact VP Distributors LLC at 1-888-383-4184 or visit www.virtusetfs.com to obtain a prospectus that contains this and other information about the Fund. The prospectus should be read carefully before investing.


Virtus ETF Advisers, LLC serves as the investment advisor, and Infrastructure Capital Advisors, LLC serves as the sub-adviser to PFFA, PFFR, and AMZA. These three funds are distributed by VP Distributors, LLC, member FINRA, and a subsidiary of Virtus Investment Partners, Inc.


Past performance is not indicative of future results.

The links to the fund fact sheets will provide standardized performance and risk disclosures.


© 2022-2023 Infrastructure Capital Advisors, LLC




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