Uncertainty Can Have Its Perks
As concerns around the markets persist, and the Federal Reserve calibrates its path forward, expect more swings ahead. Ultimately, the longer inflation stays elevated, the more the Fed has to hike interest rates, and the greater the risks mount for a recession. So far, the central bank’s hikes seem to have done little to quell price pressures. It’s hard to say when we will find a market bottom for certain, but it’s worth noting that, even with intermittent rallies, the year-to-date selloff across asset classes has been pronounced and is presenting compelling entry points for long-term market exposure.
We are focused on portfolio positioning that may provide a buffer in times of uncertainty:
• Core bonds can be one of the best defenses. With bond yields as high as they are, this is a compelling opportunity to enter into core, investment-grade fixed income. Investors can now reap yields that rival expected future returns on stocks, as well as help to protect against the effects of a recession and smooth the ride of big market moves.
• Use heightened volatility across asset classes as an opportunity. Investors can use this volatility in smart ways, either by embedding downside protection when adding risk or by hedging their existing exposures. And as the economic cycle ages, we are also focused on adding to sectors where we have the most conviction – such as health care, industrials, software and energy.
• Take advantage of capital scarcity. Investors can fill the financing gap caused by closed capital markets. Companies still need access to debt and equity financing, and those with capital can potentially charge a higher premium to provide it. This can be done through the likes of structured equity, preferred stocks, private credit or mezzanine debt.
As the economic cycle ages, we are also focused on adding to sectors where we have the most conviction — such as health care, industrials, software and energy.
Rick Barragan is the Managing Director, Los Angeles Market Manager, for J.P. Morgan Private Bank.
[email protected] | (310) 860-3658
privatebank.jpmorgan.com/los-angeles
