US inflation (CPI) comes in cooler than expected, but investors still need to adjust to a 'higher-for-longer' interest rate environment, warns CEO of one of the world's largest independent financial advisory, asset management and fintech organisations.
The warning from Nigel Green of deVere Group comes as the October consumer price index was a flat month on month, and up 0.2% when excluding food and energy for the core CPI reading.
He notes: "The surprisingly cool CPI solidifies our expectations that the Federal Reserve is done with hiking rates this year and will hold them steady in December.
"However, we believe there will be a sustained period of slower progress than we've seen up to this point against inflation in the flight to get it back to the 2% target. The process is going to be more gradual moving forward.
"Therefore, we expect one more hike from the Fed next year to boost that progress a little."
Furthermore, the deVere CEO also says the US CPI readings support his anticipation of a year-end market rally in 2023.
At the end of October, he told the media: "We're about to see a year-end rally, which investors would not want to miss out on as markets turn bullish on the Fed likely holding rates steady."
As interest rates are anticipated to remain elevated for an extended period, and a year-end market rally is expected, investors must adopt a prudent approach to navigate these evolving financial landscapes.
They should strategically consider sectors that exhibit resilience and potential for sustained growth.
"One such sector to contemplate is tech, given its capacity for continuous innovation and the increasing reliance on digitalization across industries. Technology companies often have robust fundamentals and can adapt to changing economic conditions, making them appealing in a rising interest rate scenario," says Nigel Green
"Additionally, healthcare is another sector worth attention, as demographic trends, an ageing population, and ongoing medical advancements contribute to the sector's long-term stability. The demand for healthcare services tends to persist regardless of economic cycles, providing a defensive quality for investors.
"Furthermore, the financial sector may benefit from higher interest rates, as it can enhance profit margins for banks and financial institutions. As interest rates rise, these entities often experience improved net interest income, which can positively impact their overall performance.
"Most importantly, as ever, maintaining a diversified portfolio remains crucial." Reassess your investment goals, risk tolerance, and time horizon to ensure your portfolio aligns with your financial objectives.
He concludes: "We're in a new investment era. Your investment mix needs to reflect this to build your wealth."