In collaboration with Global X
Last week the Federal Reserve made the first interest rate hike in years, and it is expected to raise interest rates by at least a quarter of a percent at each of the monthly interest rate meetings by the end of the year.
What was interesting remarks from Fed, Jerome Powell, is the fact that he noted that inflation “too high”, but simultaneously played down the risk of a recession. Indeed, given the high employment rate, it seems that the short term risk is hyperinflation and recession. This is also reflected B”btn “of the curve yields on US government, between two and 10 years, which rose last week by 25 basis points, indicating that the market expects inflation to persist for longer.
The continuation of the war in Ukraine and the sanctions on Russia are expected to continue to push up energy and commodity prices. In the current environment, we anticipate that stocks from defensive sectors such as healthcare and sectors that come out profiting from high inflation, such as real estate, energy and raw materials, will lead to price increases by the end of the year.
In general, the negative real returns, resulting from high inflation alongside economic growth, will support the stock market, as a result of the influx of positive return channels. However, the positive momentum in the stock market is likely to be limited, in view of interest rate increases, instability and geopolitical strengthening of the dollar. Such market conditions, it is recommended to apply more defensive strategies, such as investing in dividend-bearing shares.
John Mayer is Chief Investment Officer at Global X