The shadow of the world’s largest central banks has loomed large over markets for the last two years, and it can be difficult to comment on risk assets without a reference to the Fed or the ECB. Last week proved to be no different as the Federal Reserve extinguished any lingering hopes that the market would see a rate cut before the summer of 2024. ‘Don’t Fed the Fed’ and ‘Higher for Longer’ are two phrases we have quoted numerous times this year as markets attempt to digest the shift in both interest rate and inflation expectations. It may now seem obvious, but inflation (and therefore rates) look set to be higher for the rest of this decade that they have been in the previous one.
Whilst we have been managing portfolios throughout economic cycles for well over 30 years, we continue to assess the implications of such a backdrop and market environment. Indeed, higher yields also present clear and tangible opportunities from a multi-asset perspective. The current environment also presents a clear opportunity to engage with clients: money on deposit, the real rate of return, and the need sufficient risk in longer term investments are as relevant today as they have ever been.
As always, if you wish to discuss anything in further detail, please do get in touch.