Investors cautious on U.S. stocks, even though Fed hikes may soon end

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Some fear the rapid rises in rates are only starting to ripple through the U.S. economy

The end of the Federal Reserve’s bruising rate hiking cycle may be in sight, yet investors are finding plenty to worry about when it comes to the U.S. stock market.

“Macroeconomic policy and the outlook for the economy is more complicated than it was two weeks ago,” said Anthony Saglimbene, chief market strategist at Ameriprise Financial, who is holding a lighter than normal equity allocation. Adding to the market unease were comments from Treasury Secretary Janet Yellen, who told lawmakers on Wednesday that the Federal Deposit Insurance Corporation was not considering “blanket insurance” for deposits arising from recent strife in the sector.

Meanwhile, though the Fed’s latest policy statement no longer said that “ongoing increases” in rates would likely be appropriate, Powell said that inflation remained well above the Fed’s goal and that policymakers were unlikely to cut rates this year, an outlook at odds with that of many investors. Many investors’ portfolios remain light in equities, a market condition some view as a positive for stocks because of the potential for powerful buying when the market mood shifts. Deutsche Bank’s measure of aggregate equity positioning saw its biggest drop in 15 months last week, the bank’s strategists said in a March 17 note.

“I think there’s more volatility to come, without a doubt,” said Desai, who expects the benchmark U.S. 10-year yield will rebound to 4% this year from its current 3.45%.

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