Powell ‘disinflationary process’ kick starts ‘year of opportunity’

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Comments made Tuesday by Federal Reserve Chair Jerome Powell are likely to “kick start a year of important opportunities” for investors, according to a leading independent financial advisor.

Powell, speaking during a question-and-answer session with David Rubenstein of the Economic Club of Washington, delivered his first remarks after Friday’s “extraordinarily strong” U.S. jobs report which, according to the central bank, shows it has more work to do to tame inflation.

“We didn’t expect it to be this strong,” he said of the January jobs report, which found that 517,000 jobs had been added to the U.S. economy.

“It kind of shows you why we think that this will be a process that takes a significant period of time.”

A bullish Nigel Green, CEO of advisory and fintech deVere, said that investors hang off every word of the chairman of the central bank of the world’s largest economy.

“So, naturally, when Jerome Powell said ‘the disinflationary process has begun’, markets jumped — despite him also adding notes of caution,” he said.

“It would have also not gone noticed by investors that when pushed a little, Powell didn’t use the opportunity to adopt a more hawkish tone.”

After the comments, all major Wall Street indices were trading up.

The S&P 500 was up 0.5%, the Nasdaq Composite gained 0.8%, while the Dow Jones was up 38 points, pushing back on an earlier loss of 186 points.

Declines in inflation

“We expect that the Fed believing that ‘significant’ declines in inflation will occur this year, is likely to kick start a year of important opportunities for investors,” Green said.

“2022 was an extremely challenging year for investors, many of whom were caught off-guard by not having properly diversified portfolios, which left them open to untold financial risks.

“Looking ahead to the rest of 2023, it is likely that investment headwinds will exceed the tailwinds – thanks to considerably more favourable market conditions driven by inflation peaking and China’s reopening, amongst other factors,” the deVere chief executive added.

“As we move into an era of peaked inflation, it’s crucial that investors ensure their portfolios are suitably diversified across asset classes, sectors, currencies and regions, so as to make the most of the considerable opportunities that will inevitably present themselves.”

Technology stocks led the gains on Powell’s comments.

Last week, as big tech firms posted earnings reports, deVere’s Green noted that as market environments shifted in 2022, investors dumped growth stocks, like tech, in favour of value stocks which were deemed more suitable to the challenging landscape.

“But what is happening now is the beginning of a rebound. Tech stocks are back. Rotation into the right growth stocks will provide strong returns.”

He cited two key reasons for the start of The Great Rotation back to growth stocks.

First, valuations of tech and other growth stocks are low, having been hit by the previous rotation into value stocks. Investors are now eyeing these attractive entry points to top up their portfolios as the trend is reversing.

And second, inflation has seemingly peaked, and interest rates are set to stabilise, which takes away a major obstacle for tech stocks.

“Powell’s comments about the disinflationary process having begun will now dominate investors’ mindsets in 2023 as they seek to create and build wealth after a difficult 2022,” Green concluded.