U.S. Federal Reserve Building of Chicago. Photo: Wikimedia.
The U.S. Federal Reserve officials last month agreed that, with inflation tightening its grip on the economy and employment strong, it warrants raising interest rates, but that any decisions made would depend on a meeting-by-meeting analysis of inflation and other data.
In response to the release of the minutes of the Federal Reserve’s latest policy meeting, investors should consider three key sectors, says the CEO and founder of deVere Group, one of the world’s largest independent financial advisory, asset management and fintech organizations.
The observations from deVere Group’s Nigel Green follow the U.S. central bank’s minutes being made public of their last major meeting. It said that hike decisions would be reliant upon a meeting-by-meeting analysis of the economic data.
“Some participants expressed concerns about the potential of financial conditions tightening excessively as a result of a quick removal of policy accommodation,” read the minutes.
Most investors say they anticipate the Fed to begin raising rates in March with a starting increase of half a percentage point, and to continue hiking rates throughout the year.
Nigel Green says:
“The world’s most influential central bank’s minutes show a slightly dovish tone regarding its plans to hike interest rates in 2022. However, rates are going up.
Against this backdrop of the move towards normalization of monetary policy by the Fed and other major central banks around the world, I believe, investors should consider increasing their portfolio exposure in three key sectors: tech,financials, and raw materials.”
“There will be some volatility in the tech sector as rates go up and economic growth slows.
Higher rates mean tech firms’ projected profits are worth less in investors’ valuation models as peak earnings are not expected for years to come.
However, the pandemic has led to the advancement of fundamental trends, such as online shopping, remote working and gaming – all of which have tech at their core. ”
Nigel Green goes on to say:
“History teaches us that financial stocks perform well when rates are being hiked. That said, if the Fed acts too fast and too extreme, this should be reviewed.
Raw materials is the other sector that investors should consider – despite the slow down in economic growth in major economies. Traditionally, they’re a safe inflation hedge. Plus, they are currently undervalued in the market.
In addition, we can expect infrastructure spending by governmental agencies to continue – or even increase.”
On a wider note, diversification, says the deVere CEO, as always, remains investors’ best tool to position themselves for risk mitigation and to be able to seize the opportunities as they are presented in the market.
“Financial history suggests that long term investors with a balanced, multi-asset portfolio, are best placed to ride out such periods of market nervousness as the macro-economic conditions alter.
As monetary policies are normalized, there will be winners and losers. A good fund manager will come into their own in this regard.”