Caught in a holding pattern
In the early weeks of 2023, a disinflationary trend took hold, fueling a market rally and optimism for an impending pause in rate hikes. Volatility surged in March, however, following the failure of Silicon Valley Bank and perceived instability of the U.S. banking system. Should that instability continue, it could complicate the Fed’s ability to promote financial stability and measured inflation, adding yet another element of uncertainty to the outlook. Regardless, we seem to be already in that “higher-for-longer” interest rate environment, which is likely to trigger slower growth, make life more difficult for consumers and cause tighter liquidity conditions, all of which have portfolio construction implications.
So what should investors do during this holding pattern? We unraveled that conundrum in our most recent Global Investment Committee sessions. And our conclusions lead us to offer the following three portfolio construction themes:
- Prepare for landing
- Don't put your portfolio on autopilot
- Balance the public/private predicament