Jerome Powell delivered his first remarks after Friday’s “extraordinarily strong” U.S. jobs report which, according to the central bank, shows it has more work to do to tame inflation.
He was speaking during a question-and-answer session with David Rubenstein of the Economic Club of Washington.
“We didn’t expect it to be this strong,” he said of the January jobs report, which found that 517,000 jobs had been added to the U.S. economy. “It kind of shows you why we think that this will be a process that takes a significant period of time.”
Of course, investors hang off every word of the chairman of the central bank of the world’s largest economy.
So, naturally, when Jerome Powell said ‘the disinflationary process has begun’, markets jumped — despite him also adding notes of caution.
It would have also not gone noticed by investors that when pushed a little, Powell didn’t use the opportunity to adopt a more hawkish tone.
After the comments, all major Wall Street indices were trading up. The S&P 500 went up 0.5%, while the Nasdaq Composite gained 0.8%; meanwhile, the Dow Jones was up about 38 points, pushing back on an earlier loss of 186 points.
We expect that the Fed believing that "significant" declines in inflation will occur this year is likely to kickstart a year of important opportunities for global investors.
2022 was an extremely challenging year for investors, many of whom were caught spectacularly off-guard by not having properly diversified portfolios, which left them open to untold financial risks.
Looking ahead to the rest of 2023, it is likely that investment headwinds will exceed the tailwinds – thanks to considerably more favourable market conditions driven by inflation peaking and China’s reopening, amongst other factors.
As we move into an era of peaked inflation, it’s crucial that investors ensure their portfolios are suitably diversified across asset classes, sectors, currencies and regions, so as to make the most of the considerable opportunities that will inevitably present themselves.”
Technology stocks led the gains Tuesday on Powell’s comments.
Last week, as big tech firms posted earnings reports, I noted in the media: “As market environments shifted in 2022, investors dumped growth stocks, like tech, in favour of value stocks which were deemed more suitable to the challenging landscape
“But what is happening now, we believe, is the beginning of a rebound. Tech stocks are back. Rotation into the right growth stocks will provide strong returns.”
I cited two key reasons why the big tech reports heralded the start of The Great Rotation back to growth stocks.
First, valuations of tech and other growth stocks are currently low, having been hit by the previous rotation into value stocks. Investors are now eyeing these attractive entry points to top up their portfolios as the trend is reversing.
And second, inflation has seemingly peaked, and interest rates are set to stabilise, which takes away a major obstacle for tech stocks.
Powell’s comments about the disinflationary process having begun will now dominate investors’ mindsets in 2023 as they seek to create and build wealth after a difficult 2022.
They will be positioning their portfolios to take advantage of improving market conditions in order not to miss out on opportunities.
London-born Nigel Green is founder and CEO of deVere Group. Following in his father’s footstep, he entered the financial services industry as a young adult. After working in the sector for 15 years in London, he subsequently spent several years operating within the international space, before launching deVere in 2002 with a single office in Hong Kong. Today, deVere is one of the world’s largest independent financial advisory organizations, doing business in 100 countries and with more than $12bn under advisement. It specializes global financial solutions to international, local mass affluent, and high-net-worth clients. In early 2017, it was announced that deVere would launch its own private bank. In addition, deVere also confirmed it has received its own investment banking license.
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