There are winners and losers from the Fed’s rate cut, the first in more than a decade – and U.S. and global investors now need to revise their portfolios, warns one of the world’s largest independent financial advisory organizations.
The warning from deVere Group’s International Investment Strategist, Tom Elliott comes as America’s central bank cut interest rates by 25 basis points Wednesday.
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Mr Elliott comments: “The Fed’s first rate in more than a decade had been widely expected, yet divides the markets’ opinion.
“U.S stocks have taken heart from a recent upturn in domestic economic data and from the prospect of the Fed and other central banks easing monetary policy over the coming months.
“This, it is argued, will help the current cycle of U.S. and global economic growth.
“However, the U.S Treasury market, is indicating that a recession is around the corner. The inverted Treasury yield curve is cited as ‘exhibit number one’ for this thesis.”
“Today’s decision by the Fed to cut rates suggests that while the policymakers believe the economy is looking in good shape, there are also some growth headwinds on the horizon and inflation is low, so a rate cut will act as a buffer.
He continues: “Where does this leave for U.S. and international investors?
“Investors can incorporate both opinions into a portfolio by owning growth-sensitive stocks and misery-loving government bonds. This multi-asset approach is standard amongst long-term investors.
“Specifically, the rate cut will put further downward pressure on the U.S. dollar, with the Yen, Swiss franc and Euro likely to rise against the greenback.
“Emerging stock markets should gain the most from lower Fed rates and a weaker dollar, since the massive U.S. dollar debt many emerging market companies took on in the early years of this decade becomes cheaper to service and repay in local currency terms.
“U.S. exporters should also benefit, plus the battered British Pound may get some near-term relief from a Fed rate cut, particularly as the Bank of England seems unlikely to be cutting its own benchmark rates any time soon.”
Mr Elliott concludes: “U.S. and global investors now need to revise their portfolios to ensure that they are best-positioned to take advantage of opportunities and mitigate the risks as we enter what is likely to be a new era of rate cutting for the Federal Reserve.”
deVere Group is one of the world’s largest independent advisors of specialist global financial solutions to international, local mass affluent, and high-net-worth clients. It has a network of more than 70 offices across the world, over 80,000 clients and $12bn under advisement.