Source: Bloomberg

The Federal Reserve is slowing down. Don’t let that get your hopes up.

It’s the message financial advisers and analysts had for me this week when I asked them what to make of the state of the markets. On Wednesday, the Federal Reserve increased interest rates by 25 basis points, in line with expectations. Chair Jerome Powell said “a couple” more hikes are in store this year and that he doesn’t expect a rate cut later in 2023 if the economy performs as expected.

All of those comments can be read as hawkish, and would normally be negative for the stock market. However, the S&P 500 ended the day up more than 1% after he acknowledged the central bank has made progress in its battle against inflation.

Powell’s comments come just over a month into a year that is unfolding more optimistically than anticipated. The S&P 500 closed out January on a high note, ending with a 6.2% gain. That was the best start to a year since 2019. The beleaguered Nasdaq 100 rebounded more than 10% in a January turnaround unseen in more than two decades. Even Bitcoin — Bitcoin — had its best first month of the year since 2013.

Feeling a dash of FOMO? Forget about it, money managers say.

“The latest risk-on market is likely to be a head fake,” noted Lauren Goodwin, portfolio strategist at New York Life Investments. “Data is always mixed as we approach the end of an economic cycle, and so it’s important to separate leading economic indicators from lagging ones.”

Take housing. The market has cooled, with recent data adding to evidence that inflation is retreating. But housing measures show up in data with a significant lag: November is the most recent report we have from Case-Shiller, a key price indicator. What’s more, Goodwin notes that GDP and labor market figures may seem comforting, but such data tend to turn late in economic cycles. In this environment, her team favors “all-weather strategies.” She is taking recent gains in growth stocks and redeploying them in value stocks, as well as corporate and municipal bonds.

For Mark Struthers, a financial planner at Sona Wealth in Minnesota, we’re headed to a “new normal” that looks a lot like the old one, before the Fed lowered rates to record levels after the financial crisis and kept them there. In this higher-rate environment, value stocks gain more appeal; they’re stocks that look cheap based on their fundamentals, even if their growth potential is modest.

He also believes short-term Treasuries are a very attractive option right now because of their high yields relative to longer-dated bonds. “Rates could certainly go higher, but when you can hold bonds to maturity, you know what you will get and can ignore market volatility,” he added.

Dennis Nolte, financial consultant with Seacoast Investment Services in Winter Park, Florida, says he is hunkering down for a possible recessionary selloff. He believes the market’s recent bout of optimism has gotten ahead of itself and seems “highly speculative.” Given that, he’s been buying some targeted international ETFs, gold and fixed income.

So don’t dip your hand too far into the risk-asset jar. But also don’t let the normal evolution of the economic cycle paralyze your portfolio strategy, says Jonathan Shenkman, president of Shenkman Wealth Management in New York

“Thankfully for investors, there are opportunities at every stage of the economic cycle,” he told me. One bright spot: money-market rates are in the ballpark of 4%, making them extremely attractive and helpful for risk-averse retirees. On the flip side, investors who can stomach a bit more risk right now have the chance to “buy the dip” in equities that are still below their recent highs. But please, keep your FOMO in check. ⁠— Charlie Wells

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Don’t Miss


In Bloomberg Opinion this week, Alexis Leondis explains how to protect your money after a layoff:

Beyond the obvious (like doing a detailed review of expenses), there are some more nuanced crucial steps to ensure you don’t make the situation go from bad to worse. For those who worked for a tech firm or bank — you’re probably getting a pretty generous severance package and benefits, so you’ll want to avoid any missteps to make the most of them.

Read her full article here.

Financial FAQ

What do you think is the best way for someone to ask for a raise right now?

Requesting a raise at work can feel intimidating, but it is often important for career growth. In today’s uncertain and inflationary environment, the discussion around pay increases can take on even more significance. Consider the following tips:

  • Research: Compare your current salary with similar positions. This can help with finalizing numbers and provide context for both you and the employer. Historic annual increases may not meet the higher inflationary pressures so be mindful of the difference between the nominal raise (pre-inflation increase) and real raise (post-inflation increase).
  • Make your case: Highlight your accomplishments, and don’t be shy about it. Try to provide numbers to quantify the value you bring.
  • Make it a win-win: In addition to past accomplishments, explain your plan for the future. What will you do next to benefit the company?
  • Confidence: No one will advocate more for you than you. Be respectful but be confident. ⁠— Elliot Pepper, financial planner and director of tax, Northbrook Financial