Fed Likely to Keep Rates High Longer Than Expected; Bad News for Stocks, Good for Banks
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Markets have underestimated how long the Fed will keep rates high as the economy remains strong and inflation persists. This could mean more risk for investors who expected rate cuts.
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The Fed will likely keep policy tight, with rates staying above 4% for longer than anticipated. This is bad for most assets like stocks and real estate.
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Inflation may not be transitory as structural issues like retiring boomers, government spending, and global instability persist. Just because inflation falls doesn't mean it's "bagged."
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It's a good time to buy interest rate-sensitive sectors like banks and oil which offer better returns for less high valuations than many tech stocks.
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Small caps should outperform big tech since they don't have exposure to overvalued large cap tech names.