Bond funds lost an average of 4.2 percent, with long-term funds declining in double digits.
Marko Papic, chief strategist at Clocktower Group, an asset manager, agreed with Mr Thompson that “the more the stock market ignores the Fed’s hawk, the more likely it is that they will get into trouble sooner”. But Mr Papic expects the Fed to choose to tolerate sustained inflation later in the year to try to prevent a recession.
Mr Papic advised investors to “move in value now” by buying stocks from commodity producers and in countries such as Brazil and Chile that export goods. The dominance of mining in the economies of these countries may explain much of Morningstar’s recent strong performance among Latin American funds.
The Russia-Ukraine war and the global economy
If the Fed does not continue to take an aggressive approach, the inflation-adjusted bond yield will be “very low, so commodities will rise,” he said. However, he acknowledged that investing in goods is risky and added: “If I make a mistake and there is a recession, they will be killed.”
In the current environment, he continued, growth stocks, especially large and expensive technology blue chips such as Microsoft and Apple, could be dangerous to own. They began to benefit before the pandemic, “and then Covid allowed technology companies to offer a decade of customer growth,” Mr Papic said. “We are on the verge of this superiority.”
The outlook for technology stocks may depend on interest rate prospects. Technology stocks tend to react badly to higher interest rates because these companies are more expensive than others in the beginning, and higher interest rates tend to suppress stock valuations in general. In addition, higher rates often come when the economy is strong and the ability of technology companies to grow when other sectors cannot be less important.
The more aggressive Fed, even in just a few months, means higher interest rates, and Mr Brightman highlighted a trend driven by increased geopolitical risk that could keep interest rates much longer: a “slowdown” as he expressed a downturn or even a reversal of the free trade system, which has created enormous wealth for investors.
A new urgency to ensure stable and secure supply chains could force companies to move production closer to home, he said. Building production capacity will require capital, raising interest rates and, as it costs more to make the gadget in Secaucus than in Shenzhen, also inflation.