Investors look to ‘year of opportunity’ after Fed Chair’s ‘disinflationary process’ comment

Comments from Federal Reserve Chair Jerome Powell this week will likely kick start a year of important opportunities for global investors.

Following last week’s “extraordinarily strong” U.S. jobs report, Powell delivered his first comments during a question-and-answer session with David Rubenstein of the Economic Club of Washington, stating: “We didn’t expect it to be this strong.”

As I was quoted by Forbes, Newsmax, Yahoo Finance, MSN, Mena FN, Financial Mirror, Financial Express, Investor Ideas, Korea Times, Business Traffic, Forkast News and India CSR, amongst other media, naturally, investors hang off Powell’s every word. So, when he said ‘the disinflationary process has begun’, markets jumped, even though he added some cautionary notes.

Following the Fed Chair’s comments, all major Wall Street indices edged up. The S&P 500 rose 0.5%, while the Nasdaq Composite gained 0.8%, and the Dow Jones increased around 38 points, following an earlier loss of 186 points.

As a result of the Fed believing that we’ll see ‘significant’ falls in inflation in 2023, this will likely start a year of important opportunities for global investors.

Last year was incredibly challenging for investors, with many caught off-guard by having insufficiently diversified portfolios.

Yet looking ahead to this year, it’s probable that investment headwinds will exceed tailwinds, predominantly due to more favourable market conditions fuelled by the reopening of China and inflation peaking, amongst additional factors.

Therefore, as we move into a time of peaked inflation, investors must make sure their portfolios are suitably diversified across asset classes, sectors, currencies and regions to take advantage of the substantial opportunities that will inevitably arise.

Leading the gains after Powell’s comments were technology stocks. As I said last week, when big tech firms posted earnings reports, investors dumped growth stocks – like tech – for value stocks.

Although what we’re seeing now is, we think, the start of a rally. Tech stocks are back, and rotation into the right growth stocks will lead to strong returns.

There are two key reasons why, I believe, the big tech reports marked the beginning of The Great Rotation back to growth stocks. The first is tech valuations, and other growth stocks are low right now, impacted by the previous rotation into value stocks. As such, investors focus on these lower entry points to top up their portfolios. Second, it looks as though inflation has peaked, and interest rates are set to stabilise, thereby removing a key obstacle for tech stocks.

The Fed Chair’s comments about the start of the disinflationary process will now dominate investors’ mindset this year as they focus on generating and building wealth following a tough 2022.

Indeed, they will be positioning their portfolios to make the most of improving market conditions so as not to miss the opportunities.

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