In this week’s Market Pulse, Chief Investment Officer Bernard Swords discusses the market reaction to last week’s Fed meeting, the speeding up of the rate cycle and what it all means for portfolios.
- After the calmness of recent times, last week ended poorly. Inflation concerns and the speeding up of the rate cycle following the Fed meeting on Wednesday was the central catalyst.
- The Fed meeting put markets into defensive mode as bond markets advanced. In our view, the output from the Fed does not change the roadmap very much.
- The main take away for us is that we are moving out of the recovery phase of the cycle. Monetary policy remains supportive but the extreme elements of it are being withdrawn. What does this mean for asset allocation? Generally, equity markets continue to make progress and are the asset of choice as we move through this transition but, unsurprisingly, the rate of return is lower.
- The bond market is somewhat confusing. In past cycles the yield would have been rising as we travelled towards the change in monetary gears, as we had up to March. The recent strength is baffling but from our perspective somewhat helpful. We still expect yields to track higher, but an important part of our outlook was that the rise in yields would be orderly. The recent action in the bond markets gives us comfort on this.
