The danger of "excessive tightening of rates": Pay attention to this expert
European markets are experiencing a decline in performance this Thursday, following the previous day's downward trend in Wall Street and Asia this morning.
Specialists are carrying out an ongoing examination of the present economic situation and the future prospects, which are contingent upon the monetary policy approach employed by central banks.
Lewis Grant, a portfolio manager responsible for global equity at Federated Hermes (EPA:) Limited, provides insight into the current state of equities. Grant highlights that, apart from a few companies taking advantage of the AI industry, equities have largely faced widespread apprehension over the past year. Fortunately, indicators of risk avoidance have started to decrease in the previous month.
"The timing is quite intriguing: investor enthusiasm clashes with mounting negativity regarding the overall economic prospects. The probability of a decrease in US productivity is growing, fueled by disappointing industrial performance and a labor market that is exhibiting signs of deceleration. The outcomes observed in June further fortify the likelihood of two additional interest rate increases in the remainder of this year. Maintaining investor optimism could become quite challenging," remarks Grant.
He cautions that as the Federal Reserve tightens its policies, the repercussions on the economy will become more severe. Furthermore, the more severe these repercussions are, the quicker the need will arise for the Federal Reserve to decrease interest rates.
Grant states that if there is too much tightening, it would call for more severe steps towards easing, whereas at present, central banks aim to find a carefully managed solution for reducing high inflation by gradually implementing monetary easing measures. Although we have not observed any swift reduction in interest rates yet, we are getting ready for a gradual withdrawal. However, we remain attentive to any excessive tightening measures.
He concludes that the prospects in this setting are still dominated by big companies with a focus on growth. These companies have stable financial positions and hold strong market positions that are unlikely to be easily challenged. Growth investors find these stocks attractive, but they also appeal to individuals who prioritize quality.
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