In a recent memo to investors, Wilsons equity strategist Rob Crookston pointed out how there are many similarities between 2023 and 2019.
In both those years the economy was slowing. In 2019, the Reserve Bank of Australia and US Federal reserve responded with interest rate cuts.
"While the motives for cuts this year will be different, the market is now pricing cuts to the Fed and RBA after a fall in confidence in the global banking system," Crookston said in a memo to clients.
"We believe some easing later in 2023 for the Fed, and late 2023 or early 2024 for the RBA is plausible."
'Our biggest overweight in the portfolio'
But the reality is no one really knows how it will all turn out.
As Crookston noted, this time around rates will remain much higher than 2019 even after central bank cuts.
That's if the rate reductions eventuate at all.
"Persistent inflation is still a risk to the rate cut scenario," he said.
"Tail risk event probabilities are heightened in 2023 vs 2019 due to the fast pace of monetary tightening."
So what should investors do in such an uncertain environment?
According to Crookston, one particular sector is best placed to cope with whatever economic circumstances come up this year and next.
"We think healthcare gives us protection in many different scenarios, hence it is our biggest overweight in the portfolio."
'Earnings should hold up' even if economy tanks
The three "key" healthcare stocks that the Wilsons team holds are CSL Limited (ASX: CSL), Resmed CDI (ASX: RMD) and Telix Pharmaceuticals Ltd (ASX: TLX).
Crookston said that ASX shares such as these can still outperform if bond yields continue to drop, which will happen if the rate rises really bite and the economy suffers.
Health businesses will certainly see "fewer downgrades than cyclicals".
"[If the] economy slows or goes into a recession, earnings should hold up in this scenario," he said.
"Pricing power protects against inflation, if more persistent than expected."
The ResMed share price has already risen a chunky 7.85% year to date, while CSL has pushed up 3.25%. Telix has remained flat.
