Lately, we’ve all felt the volatility in the markets.
Fears about rate hikes and inflation have crept into the news. Rumors about the Fed’s actions in 2022 are circulating.
The stock market has dropped as a result.
The S&P 500 is down about 7% from its highs, and the Nasdaq has tumbled about 13%.
This pullback in the markets has been an overreaction to speculation. Yet it does influence what our investment strategy should be this year – what we should be buying… and what we shouldn’t.
So in this essay, I’ll reveal some of my thoughts on what we should watch out for… and I’ll share a unique opportunity to profit even in these market conditions…
All Eyes Are on the Fed
Despite what some outlets report, I don’t expect to see any major rate hikes until early 2023.
I predict the Fed will raise interest rates one time (and no more than twice) this year. It will likely be a small 25-basis point increase.
After that, the Fed will stay put through the midterm elections.
From my perspective, the Fed no longer acts independently. It is very much a political entity, tied to the whims of the political class.
So I don’t think we will see any aggressive raises until after the elections.
The first rate hike may cause a little more weakness in the market. But eventually, investors will realize that the Fed is bluffing.
This means the equity markets should be strong throughout this year. Institutional investors will see the recent pullback as a big buying opportunity.
That said, if the Fed does in fact follow up with its threats of aggressive rate hikes, it will be very bad for the market.
And in that scenario, there are a few key considerations for investors to keep in mind…
Lots of Debt
As rates go up, it will be especially critical to invest in high-quality assets.
That’s because debt is one big concern related to rising rates.
About $3 trillion worth of junk bonds are outstanding in the U.S. right now. Corporations on shaky financial footing owe this high-yield debt.
What’s more, about $4 trillion worth of investment-grade debt is teetering right on the edge of junk bond status.
I don’t expect rates to rise dramatically, but even small rate increases can have an outsized impact on overly leveraged companies.
Any small downturns in the underlying companies’ fundamentals could get this debt downgraded to junk bond status.
So we have roughly $7 trillion worth of low-quality corporate debt out there. That’s about 75% of the entire corporate bond market.
This is scary… and every tick up in interest rates will negatively impact the price of these bonds.
Needless to say, we don’t want to be holding any of that debt. And with very few exceptions, we don’t want to be invested in any companies that fall in that 75%.
Sadly, we also want to avoid small businesses that are heavily dependent on discretionary consumer spending.
Many households already have less money to spend on discretionary items thanks to inflation.
We’ve seen a big spike in prices at the grocery store and our favorite restaurants, for example… in fact, prices are noticeably higher across the board.
And household expenses could go even higher as interest rates rise. That’s bad for small businesses that rely on excess consumer income.
These are two potential danger zones we’ll keep an eye on going forward.
Yet there are still reasons to remain optimistic about 2022…
Don’t Miss This Opportunity
Despite worries about inflation and interest rates, we’re still seeing opportunities in the current economic environment.
We’ve had strong economic growth. Record levels of investment are fueling the private and public markets – and I expect that will continue in 2022.
We’re also putting COVID-19 behind us, and people are going back to work.
And even better, the market pullback is creating great buying opportunities. Fantastic assets and companies are coming back down to realistic valuations.
This can also be a wonderful time to dollar-cost average and gain some additional exposure to great investments.
And there’s a unique investment opportunity building on the horizon. One tech trend in particular is poised to do very well in 2022… and beyond.
That’s why I’m preparing an exclusive briefing to give investors all the details…
Tonight, at 8 p.m. ET, I’ll go even deeper into the best strategy for investing in 2022.
I’ll even give away the name and ticker of one of my top recommendations.
And I’ll reveal exactly why I’m so excited about this promising technology trend that’s just beginning to take off.
So if you’re concerned about the recent pullback… or are simply trying to figure out how to navigate the current market cycle… please go right here to sign up to attend this special briefing.
This could be the most valuable investment event you attend all year.
Editor, The Bleeding Edge
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