Don\u2019t Fight the Fed: Inflation, Interest Rates, and Investing<\/p>\n
The old adage, \u201cDon\u2019t fight the Fed,\u201d cautions against investing in ways that might run counter to U.S. central bank policy.[0]<\/a><\/sup> With inflation surging last year, the Federal Reserve (Fed) hiked interest rates from nearly zero to almost 5% within the past year.[1]<\/a><\/sup> Raising the rates can reduce the upward pressure of prices by stimulating saving rather than spending and investing, as well as increasing the expenses of mortgages and other forms of borrowing.[2]<\/a><\/sup> Asset prices and economic growth can be negatively impacted by these factors.[2]<\/a><\/sup><\/p>\n Marko Kolanovic recently warned that investors should fade this year\u2019s stock rally because a recession is not currently priced into equity markets.[3]<\/a><\/sup> Wilson\u2014the top-ranked strategist in last year\u2019s Institutional Investor survey\u2014expects deteriorating fundamentals, along with Fed hikes that are coming at the same time as an earnings recession, to drive equities to an ultimate low this spring.[4]<\/a><\/sup> Wilson forecasts that the S&P 500 will close out the year at 3,900 points, approximately 4.7% lower than its closing value on Friday, with a turbulent journey ahead.[5]<\/a><\/sup><\/p>\n In January, the labor market added 517,000 jobs, resulting in a 54-year low unemployment rate of 3.4%, according to Forbes.<\/p>\n The U.S. added 517,000 jobs in January, government data released Friday showed, crushing the 185,000 consensus nonfarm payrolls estimate from economists surveyed by Bloomberg. The US unemployment rate dropped to 3.4%, its lowest level in over half a century.[1]<\/a><\/sup><\/p>\n Wilson suggested that if US inflation data shows prices rising more than anticipated, it could spur investors to reassess the market and bring stocks back in line with bonds. He added that expectations for this outcome have been increasing.[4]<\/a><\/sup> It is anticipated that the data on Tuesday will reveal that consumer prices rose 0.5% in January compared to the previous month, largely due to an increase in the cost of gasoline.[6]<\/a><\/sup> This would be the largest increase in three months.[4]<\/a><\/sup><\/p>\n The conundrum that investors face is that strong wages and spending would likely add to inflationary pressures, yet provide little rationale or incentive for the Fed to cut rates.[0]<\/a><\/sup> In other words, while the labor market has remained strong, investors should be mindful of the Fed\u2019s rate hikes and be wary of investing counter to policy.<\/p>\n 0. <\/span>“Market Sentiment: Too Bullish to Start 2023?” Morgan Stanley, 15 Feb. 2023, https:\/\/www.morganstanley.com\/ideas\/market-sentiment-bullish-q1-2023<\/a><\/a><\/p>\n 1. <\/span>“Wharton’s Siegel: strong US jobs data may hit stocks, lead to recession” Markets Insider, 6 Feb. 2023, https:\/\/markets.businessinsider.com\/news\/stocks\/wharton-siegel-jobs-report-economy-stock-market-outlook-fed-recession-2023-2<\/a><\/a><\/p>\n 2. <\/span>“Wharton’s Siegel: Stocks will keep surging, house prices will tumble” Markets Insider, 9 Feb. 2023, https:\/\/markets.businessinsider.com\/news\/stocks\/jeremy-siegel-wharton-stocks-house-prices-market-outlook-predictions-fed-2023-2<\/a><\/a><\/p>\n 3. <\/span>“It’s time to become defensive with stocks and ditch them for bonds because a recession is coming, says JPMorgan’s top strategist” Business Insider Africa, 14 Feb. 2023, https:\/\/africa.businessinsider.com\/markets\/its-time-to-become-defensive-with-stocks-and-ditch-them-for-bonds-because-a-recession\/8vq050j<\/a><\/a><\/p>\n 4. <\/span>“Morgan Stanley says the stock market is \u2018disconnected from reality\u2019 and it\u2019s going to hit bottom this Spring” Fortune, 13 Feb. 2023, https:\/\/fortune.com\/2023\/02\/13\/morgan-stanley-stock-market-downturn-bottom-this-spring-disconnected-from-reality\/<\/a><\/a><\/p>\n 5. <\/span>“Stock market poised for next leg lower as profits shrink, says Morgan Stanley’s Mike Wilson” msnNOW, 6 Feb. 2023, https:\/\/www.msn.com\/en-us\/money\/markets\/stock-market-poised-for-next-leg-lower-as-profits-shrink-says-morgan-stanleys-mike-wilson\/ar-AA17aOnc<\/a><\/a><\/p>\n 6. <\/span>“\u2018Underlying bullish tenor\u2019: U.S. stocks fare surprisingly well as Treasury yields rise after hotter-than-expected inflation, says Morgan Stanley\u2019s Andrew Slimmon” MarketWatch, 14 Feb. 2023, https:\/\/www.marketwatch.com\/story\/underlying-bullish-tenor-u-s-stocks-fare-surprisingly-well-as-treasury-yields-rise-after-hotter-than-expected-inflation-says-morgan-stanleys-andrew-slimmon-76c0299d<\/a><\/a><\/p>\n","protected":false},"excerpt":{"rendered":" Don\u2019t Fight the Fed: Inflation, Interest Rates, and Investing<\/p>\n The old adage, \u201cDon\u2019t fight the Fed,\u201d cautions against investing in ways that might run counter to U.S. central bank policy.[0]<\/a><\/sup> With inflation surging last year, the Federal Reserve (Fed) hiked interest rates from nearly zero to almost 5% within the past year.[1]<\/a><\/sup> Raising the rates can reduce the upward pressure of prices by stimulating saving rather than spending and investing, as well as increasing the expenses of mortgages and other forms of borrowing.[2]<\/a><\/sup> Asset prices and economic growth can be negatively impacted by these factors.[2]<\/a><\/sup><\/p>\n Marko Kolanovic recently warned that investors should fade this year\u2019s stock rally because a recession is not currently priced into equity markets.[3]<\/a><\/sup> Wilson\u2014the top-ranked strategist in last year\u2019s Institutional Investor survey\u2014expects deteriorating fundamentals, along with Fed hikes that are coming at the same time as an earnings recession, to drive equities to an ultimate low this spring.[4]<\/a><\/sup> Wilson forecasts that the S&P 500 will close out the year at 3,900 points, approximately 4.7% lower than its closing value on Friday, with a turbulent journey ahead.[5]<\/a><\/sup><\/p>\n In January, the labor market added 517,000 jobs, resulting in a 54-year low unemployment rate of 3.4%, according to Forbes.<\/p>\n The U.S. added 517,000 jobs in January, government data released Friday showed, crushing the 185,000 consensus nonfarm payrolls estimate from economists surveyed by Bloomberg. The US unemployment rate dropped to 3.4%, its lowest level in over half a century.[1]<\/a><\/sup><\/p>\n Wilson suggested that if US inflation data shows prices rising more than anticipated, it could spur investors to reassess the market and bring stocks back in line with bonds. He added that expectations for this outcome have been increasing.[4]<\/a><\/sup> It is anticipated that the data on Tuesday will reveal that consumer prices rose 0.5% in January compared to the previous month, largely due to an increase in the cost of gasoline.[6]<\/a><\/sup> This would be the largest increase in three months.[4]<\/a><\/sup><\/p>\n The conundrum that investors face is that strong wages and spending would likely add to inflationary pressures, yet provide little rationale or incentive for the Fed to cut rates.[0]<\/a><\/sup> In other words, while the labor market has remained strong, investors should be mindful of the Fed\u2019s rate hikes and be wary of investing counter to policy.<\/p>\n 0. <\/span>“Market Sentiment: Too Bullish to Start 2023?” Morgan Stanley, 15 Feb. 2023, https:\/\/www.morganstanley.com\/ideas\/market-sentiment-bullish-q1-2023<\/a><\/a><\/p>\n 1. <\/span>“Wharton’s Siegel: strong US jobs data may hit stocks, lead to recession” Markets Insider, 6 Feb. 2023, https:\/\/markets.businessinsider.com\/news\/stocks\/wharton-siegel-jobs-report-economy-stock-market-outlook-fed-recession-2023-2<\/a><\/a><\/p>\n 2. <\/span>“Wharton’s Siegel: Stocks will keep surging, house prices will tumble” Markets Insider, 9 Feb. 2023, https:\/\/markets.businessinsider.com\/news\/stocks\/jeremy-siegel-wharton-stocks-house-prices-market-outlook-predictions-fed-2023-2<\/a><\/a><\/p>\n 3. <\/span>“It’s time to become defensive with stocks and ditch them for bonds because a recession is coming, says JPMorgan’s top strategist” Business Insider Africa, 14 Feb. 2023, https:\/\/africa.businessinsider.com\/markets\/its-time-to-become-defensive-with-stocks-and-ditch-them-for-bonds-because-a-recession\/8vq050j<\/a><\/a><\/p>\n 4. <\/span>“Morgan Stanley says the stock market is \u2018disconnected from reality\u2019 and it\u2019s going to hit bottom this Spring” Fortune, 13 Feb. 2023, https:\/\/fortune.com\/2023\/02\/13\/morgan-stanley-stock-market-downturn-bottom-this-spring-disconnected-from-reality\/<\/a><\/a><\/p>\n 5. <\/span>“Stock market poised for next leg lower as profits shrink, says Morgan Stanley’s Mike Wilson” msnNOW, 6 Feb. 2023, https:\/\/www.msn.com\/en-us\/money\/markets\/stock-market-poised-for-next-leg-lower-as-profits-shrink-says-morgan-stanleys-mike-wilson\/ar-AA17aOnc<\/a><\/a><\/p>\n 6. <\/span>“\u2018Underlying bullish tenor\u2019: U.S. stocks fare surprisingly well as Treasury yields rise after hotter-than-expected inflation, says Morgan Stanley\u2019s Andrew Slimmon” MarketWatch, 14 Feb. 2023, https:\/\/www.marketwatch.com\/story\/underlying-bullish-tenor-u-s-stocks-fare-surprisingly-well-as-treasury-yields-rise-after-hotter-than-expected-inflation-says-morgan-stanleys-andrew-slimmon-76c0299d<\/a><\/a><\/p>\n","protected":false},"author":3,"featured_media":903,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[47],"tags":[],"_links":{"self":[{"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/posts\/904"}],"collection":[{"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/comments?post=904"}],"version-history":[{"count":0,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/posts\/904\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/media\/903"}],"wp:attachment":[{"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/media?parent=904"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/categories?post=904"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/embarrdowns.com\/wp-json\/wp\/v2\/tags?post=904"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}