Wednesday’s stock market risk marking an intermediary top. The March inflation report indicated that prices are still rising by too much. It negates any need for the Federal Reserve to intervene by cutting interest rates.
U.S. government spending, loan forgiveness, and infrastructure spending are among the problems adding to inflation. Income investors cannot ignore interest rates staying the same. REITs are the first segments to sell. Be wary of holding W.P. Carey (WPC) or Realty Income (O) at this time. In addition, American Tower (AMT) and Crown Castle (CCI) are resuming a free-fall.
Stubbornly high housing costs are a problem for the economy. Shelter costs increased by 5.7% Y/Y. Without rent relief and lower home prices, consumers will have less to spend. Financial services firms like Citigroup (C), Wells Fargo (WFC), and B of A (BAC) are less likely to thrive when the economy is not as strong.
Your Takeaway
Markets should not care about the market’s one-day drop. It is too soon to predict a blip or a bear market. Until markets return to caring about stock fundamentals, cautious investors should lower their exposure to stocks.
The highest market risk today is investors resetting late last year’s expectations. Bulls expected six rate cuts (1.50% in total). Even three cuts could cause inflation to accelerate. Holding less interest-sensitive stocks and more in defensive sectors would be the best strategy today.
