I have been in the ‘higher interest rates for longer’ camp for a while now and this week it felt like global markets started to contemplate that they might have to join me. This combined with the tensions in the Middle East, resulted in some mild market wobbles as it dawned on market players that maybe substantial rate cuts they were once expecting, might not eventuate.

At the start of year, the US market was expecting 75 basis points of cuts starting in May. May is now upon us and there is not an actual interest rate cut in sight. Indeed, the data continues to come out stronger than expected and the commentary from the Fed seems to be changing tone more towards ‘we will hold as long as needed’. If you believe them, getting inflation down to 2%  is the goal. I never thought that was going to be as easy as the market once expected. Inflationary expectations get baked into an economy much quicker than people expect and they are historically hard to remove without a hard landing. Ouch!

Is a hard landing what I expect? At this stage no, but we also know that soft landings are historically hard to pull off. Are these mild wobbles the sign of more things to come or a temporary blip? At this point, it is hard to say. Time will tell and hindsight is a marvellous thing. What should you do about it? It depends on your situation, your goals and your time frame. Invest long enough and none of this will matter. However, it is not a bad time to do a portfolio review and make sure that you are happy to hold everything you have for the long term. Make sure your comfort levels are high with everything that you own because if this week is anything to go by, we might be in for a few more wobbles before we are done.

Kind regards,

Shelley Marsh
Outsourced Chief Investment Officer (OCIO) & Founder
Wealth Differently

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