Investors are facing all sorts of risks this year, from inflation to rising rates. Markets have not talked about the political risk surrounding the debt ceiling nearly as much, however. Richard Bernstein Advisors (RBA) has, however, discussed the risk of a debt default by the Federal government in its insights. RBA’s deputy CIO Dan Suzuki joined CNBC earlier this week to share RBA’s take on debt ceiling risk.
Suzuki compared the political risk environment overall to “hurricane season,” telling viewers to consider investing according to their time horizon.
“I think you really shouldn’t try to react to this,” Suzuki said. “This is not something that’s based on economic fundamentals that you can predict.”
Investors looking at the next five to ten days or weeks should consider this a big market mover, he added. Those looking out at a five-to-ten-month window should instead expect the actual economic impact to be minimal.
RBA has previously shared insights into how debt ceiling risk impacts longer-term securities like Treasuries. RBA’s focus, however, is on helping investors navigate the five-to-ten-month niche using top-down profit cycle analysis.
See more: “Don’t Ignore This Major Treasuries Risk”
Looking Ahead to the Second Half of 2023
Suzuki expanded on RBA’s five-to-ten-month window during the CNBC discussion, comparing RBA’s time frame to that of Warren Buffet. While Buffet may have a five-to-ten-year focus, Suzuki said, RBA looks at the next year or two.
“We’re in a deepening profits recession,” Suzuki said. “Liquidity is tightening, which suggests that you want to be focused on high quality and defensives.”
“I think owning the banks, owning energy companies owning a lot of these cyclical and cheap assets around the world is going to prove to be a very profitable investment,” Suzuki added.
Investors can find RBA’s profits-cycle-focused approach in an ETF like the iMGP Responsible Global Allocation ETF (IRBA).
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