A strong earnings season and robust AI investment are overcoming stubborn inflation, geopolitical turbulence, and the impact of creeping interest rates.
Oil prices hit $100 a barrel again this week as attacks in Ukraine and Saudi Arabia slow refinery capacity for gasoline, diesel and other fuels.
Given this environment, my suggestion is that you invest with a spirit of “defensive optimism,” taking profits from time to time, hedging and diversifying portfolios, while still selecting new ideas in growth sectors.
Investing is now more challenging after a period in which the Magnificent 7 stocks drove markets forward and a decade in which the world was awash with cash in a low-interest-rate environment.
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What perceptions have changed?
- Once awash in liquidity with low interest rates, benchmark interest rates are creeping up to levels that are making equity and bond markets a bit jittery. 10-year U.S. Treasurys are uncomfortably close to 5%. Japan has also seen long-term government borrowing costs rise steeply as it attempts to strengthen the Japanese yen. Surprisingly, emerging markets are going the other way, creating opportunities for investors.
- Persistent U.S. budget deficits and mounting U.S. national debt that recently passed $40 trillion. Weekly interest payments on the federal debt are now a staggering $24 billion, with 20% of federal tax receipts now going to making interest payments. Higher debt means higher interest bills, and in turn, more debt, and more inflation. Not a good look.
- A dysfunctional U.S. Congress is beginning to impact U.S. and international markets, and geopolitical turbulence and AI capital spending are raising concerns about currencies and interest rates as well.
- Artificial intelligence (AI) is exploding at rates beyond expectations. New models are proliferating, and keeping AI agents in their boxes is challenging. Capital spending on AI infrastructure, from semiconductors to data centers to power, is adding to company risk and higher borrowing costs.
- Inflationary pressures seem stubborn as the U.S., China, and other countries try to reduce imports and become more self-reliant, leading to higher prices. The imposition of tariffs and retaliatory tariffs has thrown sand in the gears of the global economy, raising economic uncertainty and risks.
While these are all valid reasons to be a bit defensive, I invite you to attend my upcoming September 17th webinar, “Three ‘Defensive Optimism’ Stocks for a Turbulent World,” with Chris Preston, to learn the multiple reasons for optimism as well.
Earnings remain robust overall, with multiple attractive growth sectors and stock ideas.
Some of them come from economic security and technology issues that are at the heart of the U.S.-China relationship. This means companies and stocks focused on cybersecurity, defense and security, emerging markets with a focus on South America and Southeast Asia, China-driven consumer plays, and of course, critical metals and artificial intelligence plays.
Stock picking is now at a premium, so I invite you to join us in tackling just what it means to be defensive and optimistic.
What are the best safe havens?
How should I organize my portfolio to weather the turbulence?
What stocks and ETFs should I buy or sell now?
What countries and sectors should I invest in for diversification?
Turbulence creates both risk and opportunity. Are you ready?
Visit the webinar page here to sign up to attend live or to access the recording after it’s over.
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