Investment Pros Are Rebalancing Portfolios Amid Inflation Shifts: What You Can Learn
Written by
Gabrielle Olya
Edited by
Molly Sullivan
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Investment professionals are feeling optimistic about the future of the economy. The majority expect inflation to remain under 3%, and 84% of registered investment advisors expect another Federal Reserve rate cut this year, according to the latest RIA Economic Outlook Index.
Here’s how investment experts are adjusting their portfolios in response to their positive economic outlook.
Advisors Increase Stock Exposure Ahead of Rate Cuts
With the majority of RIAs expecting another Federal Reserve rate cut this year, one-third (31%) are increasing client exposure to equities in anticipation.
“Generally, when interest rates are lower, this helps U.S. equities because borrowing costs for companies are reduced,” said Mike Reidy, national sales manager, RIA Channel, at Security Benefit. “This makes stocks more attractive compared to lower-yielding bond prices.”
What investors may need to be watchful of is if the Federal Reserve cuts rates due to the economy slowing down or possibly heading into a recession, Reidy said.
“This could cause market sentiment to decline, along with stock prices,” he said. “It wouldn’t be a surprise if people take some ‘chips off the table’ in November or December to protect their portfolios. Toward the end of this year, we may see reallocations to rebalance portfolios, even if we get rate cuts.”
Diversification Still Key Despite Cooling Inflation
The inflation rate hit 3.0% in September, which is lower than expected — but on track with what RIAs predicted. Reidy believes that portfolios should be adjusted based on risk tolerance, not inflation.
“True, lower inflation is generally good news for the consumer, but it has been U.S. equities — in particular large tech stocks and AI — that have driven the market higher than lower inflation or lower interest rates,” he said.
“We believe most advisors are allocating client portfolios based on clients’ risk tolerance,” Reidy continued. “Having a well-diversified portfolio during these times can provide peace of mind, and that generally includes a combination of equities — domestic and international — and fixed income.”
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