Daily Times

Don’t bank on the Federal Reserve lowering interest rates to a point where they would give a jumpstart to the economy, at least not on the immediate horizon. This was BlackRock’s message in October 2023. One big reason, says the asset manager, is that the channels of supply are likely to get clogged, and this will keep inflation hot, thus forcing the Fed to hold rates at high levels for an extended period.

How is the US economy doing right now? People disagree on this because, despite positive-looking GDP data, there are other gauges of the economy that don’t look very positive at all. As to the low unemployment rate, it’s not clear this is a sign of economic robustness, so it’s worthwhile hesitating before believing that particular claim. One thing that’s clear, says BlackRock, is that “inflation declining through 2023 has come at the cost of economic growth”.

The scenario, then, looks a lot like stagflation: economic stagnation that cannot be dispelled by simply cutting interest rates to spark borrowing and spending. This happened in the 1970s, when an OPEC oil embargo pushed up oil prices from $25 a barrel in 1973 to $144 a barrel in 1980. The hike in oil prices heated up inflation, on the one hand, but also held back the economy, on the other. The Fed’s hands were thus tied with regard to cutting rates.

Gold may not be the inflation haven for us that it can sometimes tend to be. Although people do invest in it as a preserver of value when inflation is rampant, high interest rates are distinctly unwelcome to gold lovers. For one thing, gold doesn’t yield interest and therefore loses its appeal under such circumstances, and, for another, the boosted US dollar that often comes with higher rates is bearish for the metal.

You might argue that gold tends to benefit from recessionary environments, which some analysts tell us to expect. In six out of the eight recessions we’ve seen between 1973 and 2020, gold outshone the S&P 500 index by a whopping 37%. But bear in mind that a big part of the reason for this is that gold warms to the low interest rates that normally accompany recessions, rather than to the recessions themselves. It remains unclear what gold markets should expect, looking ahead towards 2024.

Where should we invest our money in these unusual times, when geopolitical uncertainty is spreading at multiple points on the globe, when inflation continues to hurt us, and when interest rates look set to remain a bitter pill?

Take a Closer Look

You need to do your homework if you’re seeking out stocks with an upward trajectory. There are stocks that are undervalued now, but which look positioned to benefit from changing circumstances. For instance, Micron is a major maker of the memory and storage chips we use in our smartphones and computers. They’ve recently been suffering from a consumer pullback on electronics purchases, which led to an accumulation of excess inventory and pricing problems.

But the Micron CEO says the problem has righted itself and good times are just around the corner. The company is also a good candidate to benefit from AI enthusiasm. Speaking of which: Alphabet can also be numbered among these candidates. CEO Sundar Pichai believes Alphabet is “extremely well-positioned as AI reaches an inflection point”.

Catch the Waves

Speaking more broadly now: it can be helpful to look at the burgeoning trends that are shaping the economic world around us. AI may be one of them, but another one is the global shift to green energy. A third includes the ways in which supply chains are going to be altered by the geopolitical tensions that are working themselves out around the world.

When it comes to identifying companies that have a particularly rough outlook, the Financial Times says that elevated wages and rising oil prices “compound the pressure for companies most exposed to labour and energy”. Two stocks about which they maintain a bullish view are Hermes and Inditex.

Chugging Along

The fact that the US Treasury yield curve has been inverted for so long is strong reason to expect a recession in coming months, despite what some analysts may be saying. Among the people who have predicted a recession this year are the Fed themselves and The Conference Board, who put the chances of a recession at 99% in mid-May. All those months of high interest rates since March 2022 have to work their way through the system one way or another.