Beat Inflation by Owning It | The Investors Edge

By John Stewart, chief investment officer at Farmers Trust Co.

Week in Review: Market Rally In Overdrive

Even though technically the Santa Claus rally doesn’t kick in until Friday, the first of the final 5 trading days of the year, the stock market rally that began at the end of October has been nothing short of epic.

Most investors expected the Fed to push back a bit against a market that had experienced a substantial rise after its early November meeting. Instead the Fed meeting last week was a green light for investors to keep buying stocks like it was 1999.

After cautioning for months that further tightening of monetary policy could be warranted – meaning higher interest rates – the Fed now sees the potential for multiple rate cuts next year. You heard that right – rate CUTS!

Given that higher rates had been the cause of much of the market turbulence during the past two years, this was a clear signal to investors that it’s now time to buy.

Or is it? Riding the market rally higher is one thing, but going all in AFTER a quick 15% jump in stocks could be asking for trouble. Investors should be careful what they wish for, lower interest rates may end up coming at the expense of significantly lower economic growth, which could negatively impact earnings and stock prices. Stay invested, but considering re-balancing portfolios by trimming some gains here.

Featured Insight: Beat Inflation by Owning It

Inflation is moderating, which I’ve explained previously simply means that prices are rising at a slower rate, not coming back down.

As I just discussed, Jerome Powell and the Federal Reserve clearly shocked Wall Street into believing that more monetary easing (that is, money printing) could be back on the table in 2024. That would likely eliminate the idea of hitting the Fed’s 2% inflation target.

How do you combat inflation? According to Nobel prize winning economist Milton Friedman, you OWN it!

Stocks are a pretty good inflation hedge, so they’ve been rallying. Commodity prices have been more volatile of late, but some exposure there make sense as well.

One of the best options currently looks like foreign equities. They’re at 50-year lows relative to U.S. stocks on a relative valuation basis, everyone dislikes the asset class and it is broadly under-owned, and international stocks tend to be one of the best inflation hedges out there. Make sure you own some.

Looking Ahead: Happy New Year!

Well, it might not have looked like it just two short months ago, but investors turned out to have a pretty good year in 2023.

The future is always uncertain, but 2024 brings with it the potential and promise of hope for an even brighter and more prosperous year ahead.

Regardless of what is in store for the markets, next year should bring plenty of drama given the upcoming election season, especially given the dynamics of this particular presidential race.

For now though, we wish everyone a very Merry Christmas season and a Happy New Year!

Copyright 2024 The Business Journal, Youngstown, Ohio.