The Federal Reserve's latest interest rate increase did little to change Bank of America's recession outlook.
Analysts wrote in a Thursday note viewed by Insider that the central bank's 50-basis-point hike "provides little relief" to their 2023 economic outlook.
"Following the Fed's recent 50bps rate hike, our BofA economists remain cautious on the US economy, and continue to expect a mild recession starting in 1Q23 with negative US GDP for 2023," the note said.
While BofA posits stocks have a material downside of 36% next year, analysts highlighted three market areas still worth considering.
"Our BofA strategists prefer quality, income, and small caps to growth stocks going into 2023," the note said. Analysts also added that this outlook remains "cautious for our Internet coverage group," which includes companies like Amazon, Alphabet, Meta, EBay and Expedia.
BofA specifically highlighted Meta and Google-parent Alphabet as best poised to navigate a potential recession successfully. And despite deep cuts to advertising revenue remaining a threat to both companies in a recession, BofA says they still "have potential investment spending and bonus accrual flexibility that could enable the companies to grow earnings in a mild to moderate recession scenario with flat to down revenues.
Both companies did not perform well during the 2008 Great Financial Crisis, but present economic headwinds are driven by inflation as opposed to a fundamental break in markets that investors saw in the last major recession.
And despite Meta laying off a record number of employees in 2022, the company's commitment to the metaverse and artificial intelligence investments remain positive points for the company's future, the note added.
