As discussed in our market comments from earlier this year, we have been worried for quite some time that aggressive interest rate hikes could push western economies into a period of severe recession. Also, we have hinted that central banks around the world might realize their actions could do more harm than good and reverse their hawkish stance. Our prediction for this to happen was timed for the next 3 - 6 months. However, there is a chance that we may see a less aggressive approach sooner than expected and would like to draw your attention to the two latest articles below:
If this indeed should be the beginning of a broader policy change for central banks across the globe, it is becoming more likely again that such a change would lead to a short-term stock market rally while the issue of inflation would be here to stay for the time being.
Hence, we recommend reviewing and potentially increasing equity exposure over the next few weeks for the growth-oriented investor. Furthermore, we advise to put stop-loss orders on equity market shorts such as SQQQ, EPV, etc. in order to limit losses if stock markets indeed should get back into a more bullish sentiment based on an expected softening in interest rate hikes going forward. Precious metals such as gold and silver would also be likely to benefit from such a development while the U.S. dollar would be losing ground at the same time.
Furthermore, such a scenario would result in an attractive opportunity to shift from cash into bonds and fixed income investments if one indeed expected interest rates to peak before the end of the year.
Having said that, we still remain cautious on consumer sentiment since inflation would remain high and recommend avoiding consumer discretionary stocks.
As always, we remain at your disposal if you wish to discuss your personal situation in more detail.
Oliver E. Hohermuth, Principal and Chief Investment Officer