Wall Street wrapped up 2022 as the worst year since 2008, terminating a three-year winning streak. Major stock indexes suffered a bloody blow last year. The Dow fell 8.8% year over year and 10.3% from its record high. The S&P 500 tumbled 19.4% year over year and more than 20% from its all-time high. The Nasdaq Composite plummeted 33.1% year over year and 32.9% from its all-time high.

Sticky inflation at its 40-year high level due to the pandemic-led destruction of the global supply-chain system and strong demand from U.S. citizens due to unprecedented fiscal and monetary stimuli in the pandemic-ridden years, aggressive interest rate hikes by major central banks led by the Fed, lockdown in China due to the resurgence of COVID-19 infections and geopolitical conflict between Russia and Ukraine rattled the global financial world last year.

U.S. stock markets started 2023 with huge volatility. On Jan 3, the first trading day of this year, intraday volatility of the Dow, the S&P 500 and the Nasdaq Composite was around 537 points, 84 points and 304 points, respectively.

Volatility is likely to continue in January as market participants will keenly watch the major economic data of December 2022. Moreover, the next FOMC meeting of the Fed will start from Feb 1, which will lead the foundation of the central bank’s policies for 2023.

Recession Fears Grip Markets

Last year, the Fed raised the benchmark interest rate by 4.25%, which led the range of the Fed fund rate to 4.25-4.5%. The central bank projected in December the terminal rate to top out at 5.25% before it takes a call on pausing the hikes. This is higher than the September forecast of 4.75%.

Powell reiterated that the central bank would pursue aggressive interest rate hikes and tighter momentary control policies until inflation comes down to at least near its 2% target level. A marginal decline in the inflation rate has no meaningful implication for the Fed.

Market participants are expecting more softness in consumer spending and a decline in business spending due to a margin squeeze resulting in negative-to-moderate GDP growth. The Fed Chairman has also warned of some toughness going forward.

A devastated housing market owing to the high mortgage rate, disappointing retail sales in December, the peak festive season, huge inventory accumulation by several retailers, a stiff fall in U.S. manufacturing activities, disappointing sales in December of electric vehicle giant Tesla Inc. (TSLA) and a likely production cut by the global tech behemoth Apple Inc. (AAPL) triggered alarm bells for a near-term recession.

Recession fears were further ignited after central banks in Europe also hinted at hiking interest rates through 2023. Investors were once again alarmed by this as they believe that the ongoing rate increases could push the UK and Eurozone into a recession.    

On Dec 20, global financial markets were completely surprised as the Bank of Japan suddenly widened its target range for the 10-year Japanese government bond yields. The Japanese central bank’s move was perceived by market participants as potentially hawkish. BOJ has so far maintained a 0% benchmark interest rate.

Finally, the International Monetary Fund recently reported that one-third of the global economy might fall in recession in 2023. This includes the United States, Eurozone, China and several emerging markets.

Our Top Picks

At this juncture, investment in low-beta stocks with a high dividend yield and a favorable Zacks Rank may be the best option. If the markets regain momentum, the favorable Zacks Rank of these stocks will capture the upside potential. However, if the downtrend continues, low-beta stocks will minimize portfolio losses and dividend payments will act as a regular income stream.

We have narrowed our search to five large-cap (market capital > $10 billion) low-beta (beta >0 <1) stocks with a solid dividend yield. These companies have strong growth potential for 2023 and have seen positive earnings estimate revisions in the past 30 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of our five picks in the past three months.

Image Source: Zacks Investment Research

Conagra Brands Inc. (CAG Quick QuoteCAG - Free Report) has been benefiting from its robust pricing actions, which aided the top line in the first quarter of fiscal 2023. Results gained from strength in CAG’s brands, efficient pricing and ongoing execution of the Conagra Way playbook. Conagra Brands delivered improved service and productivity amid ongoing inflationary pressures and industry-wide supply chain hurdles.

Management expects the inflationary landscape to persist in fiscal 2023. Nonetheless, pricing and innovation are likely to aid CAG. We expect organic sales to increase 4.9% in fiscal 2023, which is at the higher end of management’s view of 4-5%.

Conagra Brands has an expected earnings growth rate of 3.8% for the current year (ending May 2023). The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the past 30 days. CAG has a current dividend yield of 3.41% and a beta of 0.57.

Entergy Corp. (ETR Quick QuoteETR - Free Report) has an investment plan in place to maintain utility support, and upgrade distribution and transmission. Such investment plans are expected to boost customer and industrial load growth, which should drive Entergy’s earnings.  

Over the next three years, ETR plans to invest $12 billion. Entergy is also making steady investments to boost its renewables portfolio. ETR plans to add more than 2,500 megawatts capacity by the end of 2025 and more than 5,000 MW of renewables by 2030.

Entergy has an expected earnings growth rate of 6% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the past 30 days. ETR has a current dividend yield of 3.8% and a beta of 0.64.

Kimberly-Clark Corp. (KMB Quick QuoteKMB - Free Report) is benefiting from strategic pricing actions, which continued in the third quarter of 2022. KMB is benefiting from its focus on three growth pillars, which include improving its core business in the developed markets, speeding up growth in the Personal Care segment in developing and emerging markets and enhancing digital capacities. KMB’s pricing and saving initiatives are aiding it in a rising cost environment.

Kimberly-Clark has an expected earnings growth rate of 15.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 1.7% over the past 30 days. KMB has a current dividend yield of 3.42% and a beta of 0.40.

PPL Corp. (PPL Quick QuotePPL - Free Report) has made several strategic investments that will expand its renewable-generation capacity and help it achieve carbon neutrality by 2050. PPL is also focusing on strengthening transmission and distribution lines. PPL completed the Narragansett Electric acquisition and will gain from new customer additions.

PPL has an expected earnings growth rate of 14.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.6% over the past 30 days. PPL has a current dividend yield of 3.08% and a beta of 0.78.

CNA Financial Corp. (CNA Quick QuoteCNA - Free Report) is one of the most versatile property and casualty insurers maintaining a combined ratio at favorable levels, despite a tough operating environment, which, in turn leads to underwriting profitability. A compelling product portfolio, better retention, improving pricing, and new business growth should continue to fuel premium increase of CNA.

Stable fixed-income returns and higher limited partnership returns should continue to support investment results. Strong balance sheet and cash flows enable CNA to take shareholder-friendly moves like dividend hikes.

CNA Financial has an expected earnings growth rate of 12.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 2.5% over the past 30 days. CNA has a current dividend yield of 3.78% and a beta of 0.67.