by Will Kessler
Many investors are diversifying their portfolios from standard stocks and bonds as March’s inflation surge casts doubt on economy-boosting rate cuts from the Federal Reserve happening this year, according to Reuters.
The consumer price index increased to 3.5 percent year-over-year in March, up from 3.2 percent in February and far from the Fed’s 2 percent target. Markets prior to March’s inflation report anticipated a few rate cuts this year, leading investors to buy up stock in anticipation that markets would rise when cuts materialize, but the increasing possibility that the Fed will not cut rates this year has led investors to switch up their market strategy, according to Reuters.
Some equity investors are resorting to buying up options and energy stocks to hedge against persistent inflation, according to Reuters. S&P 500 energy stocks are up around 17 percent since the start of the year, compared to just 8 percent for the overall index.
The S&P 500 fell almost 1 percent on Wednesday following the release of the March consumer price index, while the benchmark for 10-year Treasury yields hit its highest point since November, hurting bond investors, according to Reuters. The index has added around $4.7 trillion since the Fed indicated that it would likely cut rates in 2024.
CLV Fed: median and trimmed-mean CPI both remain hotter than headline CPI, further indicating that the price increases we're seeing are widespread; the CPI is not rising simply b/c of one-off jumps in a single item – it's everywhere, and inflation isn't going to 2%… pic.twitter.com/y6Hv6uZrOy
— E.J. Antoni, Ph.D. (@RealEJAntoni) April 11, 2024
“We are heading to the possibility of no U.S. rate cuts in 2024, or at least fewer cuts than the market currently prices,” Tara Hariharan, managing director at global hedge fund NWI, told Reuters.
The Fed has kept its federal funds rate in a range of 5.25 percent and 5.50 percent since July 2023 to combat high inflation, but a median of Fed governors indicated in December there would be around three cuts in 2024. The Fed retained its predictions of three rate cuts at its meeting in March.
A majority of investors predict there will be a rate cut by September’s Fed meeting as of Wednesday, according to CME Group’s FedWatch tool.
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Will Kessler is a reporter at Daily Caller News Foundation.
Photo “New York Stock Exchange” by New York Stock Exchange.
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