Investing in the S&P 500 Index SPX, -0.73% is not the best way to profit from an anticipated Fed pivot. Not because U.S. equities won’t rally when the Federal Reserve decides to reduce the pace of its rate hikes. They probably will.
I’m referring to international equities. It’s a good bet that the U.S. dollar’s strength against other currencies will weaken after a Fed pivot, and if that happens, an investment in non-U.S. stocks will earn a double return — both from the stocks themselves and from the appreciation of those stocks’ local currencies vis-à-vis the dollar.
That’s because, even though the Fed was late to the game in recognizing inflation’s persistence, European central banks, for example, were even later. Partially as a result, eurozone inflation is markedly higher than U.S. inflation — 10.0% versus 7.5% over the past 12 months. These differences suggest the Fed has the room to start easing well before Europe. We saw early indications of this when, even as Fed Chairman Jerome Powell was announcing that the Fed was prepared to slow the pace of its rate hikes, European Central Bank President Christine Lagarde insisted that more rate hikes are in order.
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MktwHulbert And these endless speculative delusions are exactly why the stockjobbers need a serious economic beat down.