Higher for Longer

On Wednesday, the Federal Reserve announced another interest rate hike and signaled that they would be going higher and stay there for an extended period. Investors, including us, were hoping that rates were already close to peaking and that the Fed might soon pause to see what effect its current policy was having on the economy. Disappointed, they sold both stocks and bonds.

It is now clear that the Federal Reserve is willing to force the economy into a broader recession to curb inflation. That changes the calculus as to where and how to invest. As a result, the Bull and his partners are modifying portfolio policy. The soft-landing scenario may be out the window. In a difficult economic environment, some companies can thrive or at least be minimally affected. These will get greater emphasis in portfolios we manage.

The stock and bond markets have already priced in much of what we can anticipate. However, the set of winners and losers has changed. We will adjust too. As usual, we like to make incremental rather than radical change. After all, there will be an end to this period and the sun will shine again–perhaps sooner than many expect. The underlying money flows suggest that possibility. Stay steady my friends.

The Lonely Bull