‘Creating a resilient equity portfolio’: Fed is the market’s biggest risk amid high inflation, says Citi

With both stocks and bonds struggling in 2022, the Federal Reserve is the market’s biggest risk as it tries to fight inflation with “mighty” tools that are “lacking in subtlety,” according to a midyear outlook report from Citigroup’s wealth-management business.

Citi likes stocks that are larger and pay dividends, as they typically hold up better in a down market and tend to perform better when markets recover, according to Bailin. He said Citi also has exposure to health care through pharmaceutical stocks because of their “relatively” low valuations, high dividends and tendency to fare well in any economic environment.

“Oil at these prices is obviously a tax on the consumer,” Bailin said. “Paying five dollars a gallon for gasoline means they can’t buy other things.” Inflation may have risen last month, but that’s not necessarily indicative of the long-term trend of where it’s headed, according to Bailin. The consumer-price index rose 0.3% in April for a 12-month pace of 8.3%, slowing from an annual rate of 8.5% in March. In its report, Citi said it expects U.S. inflation will fall toward 3.5% in 2023.

Quantitative tightening is “the reversal of its easy credit policies that ensured the flow of capital as the pandemic struck home in 2020-21,” Citi said in its report. “If the Fed hikes rates too high, too fast while also reducing market liquidity, a recession can ensue.”

The Feds job is to bring inflation much lower. If they don’t raise rates they are useless. Look for markets going much lower until they abandon responsibilities to help the market.

'Fed always gets what it wants, until it gets what it didn't want, and reverses policy. Bottom line, permanent and immutable, if you know nothing else about investing and just always followed this one simple rule...you would do fabulously well.'

Oh Lordy. Is everyone read for the Great Depression III?

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