According to Brent Schutte, chief investment strategist at Northwestern Mutual Asset Management, the stock market still has room to operate this year despite investor concerns about inflation. .
“I think the investors are still getting the wrong idea about the Fed,” Schutte told MarketWatch in a phone interview on Tuesday. “The Fed is not tightening anything, even as we have inflation over the coming months, until they offset all losses and more in terms of employment.”
Even after last week Strong labor market report and positive economic data on Monday from Institute of Supply ManagementSchutte expects the Federal Reserve to let inflation go up as long as they see profits can still be made according to their job duties. That made him feel optimistic that the stock market could continue to climb higher this year, albeit potentially at a slower pace.
Small cap, mid cap, and value stocks
Schutte is likely to continue to lead the stock market amid an expanding economic recovery, driven in part by the rollout of the Covid-19 vaccination, according to Schutte. But while value stocks are still relatively cheap, and SMEs are poised for higher income growth, he expressed concerns that individual investors may not be able to afford it. to capture the benefits involved in the economic recovery.
“I worry that a lot of retail investors are focused on growth and technology stocks,” Schutte explained, saying that they run the risk of missing out on the return on investment from conversion to value , the small and mid cap stocks he expects to continue.
rose 4.5% this week until the end of Tuesday, while shares of Apple Inc.
increased by 2.6% over the same two-day period. Amazon.com
up 2% this week.
The current economic expansion is one that “we’re really worried about inflation,” he said. But while inflation will cause more volatility, Schutte is not too concerned that it will “significantly change” the Fed’s fiscal policy or stance any time soon.
“The employment tie is a bit longer than I think people realize,” he said. “That’s what the Fed is focusing on.”
Schutte believes that some inflation will be welcomed by the central bank because of its target of 2%. “You still have plenty of room before you need to worry more,” he said.
The Fed probably won’t be in a hurry interest rate increase Schutte said it was fearful of “clogging the economic recovery” during the pandemic, especially with millions of Americans leaving the workforce. And in his view the recent Treasury sell-off reflects a strengthening US economy, and he notes that 10-year Treasury yields have remained relatively low from a historical standpoint.
The yield on a 10-year Treasury note is
1.66% on Tuesday afternoon.
However, Northwestern Mutual’s chief investment strategist believes investors will do well if there is some hedge against inflation in their portfolios. For example, he offers to buy merchandise.