U.S. inflation has fallen to 8.5%, dropping for the first time since April 2022, but investors must avoid complacency, warns the CEO of one of the world’s largest independent financial advisory, asset management and fintech organizations.
The warning from Nigel Green of deVere Group comes as year-on-year headline inflation in the U.S. retreats from June’s 9.1%.
He says: “Stock markets will be cheered by news that the world’s largest economy’s headline inflation rate seems to have peaked.
“It means the Federal Reserve has more scope not to hike interest rates so aggressively to fight rising prices.
“However, whilst this is good news for investors, a deeper dive is needed to get the full picture.
“Some of the drivers of the 40-year high inflation rate we’ve been seeing are subsiding. Commodity prices are coming down; and supply chain issues are decreasing – but we still have rising wages, and this will continue to drive core inflation.
“It is still too early to say we’re out of the woods with inflation and the impact it could have on the Fed's decision-making.”
He continues: “Investors’ response should be to avoid complacency and a ‘buy everything’ mindset and stick to basic investment fundamentals.
“You should look to allocate cash to risk assets, while remaining well diversified by asset type, as well as sector and geography.”
That said, the deVere CEO believes stock markets will rally on the news.
“Investors will now be buoyed, and this news will be justification to top-up their portfolios.
Also, stock market valuations no longer looked expensive after a poor first half of the year; there is the persistence of the ‘TINA’ (there is no alternative) argument; plus big companies are in a generally sound position.”
Despite the increasingly bullish sentiment, Nigel Green argues that investors must also ensure that those portfolio additions must help to create resilience and dynamism.
“You must buy wisely in this volatile environment.
“You should bear in mind that long-term and short-duration assets respond differently to rising inflation and interest rates.
“In addition, against the current backdrop, you should be considering less familiar, return-enhancing asset classes which could include venture capital, structured products, cryptocurrencies, high dividend stocks, hedge funds and managed futures, and real estate, amongst others.”
Nigel Green concludes: “Building your investments is, clearly, the best way to grow your long-term wealth. But don’t get obsessed with one asset class.
“Diversification remains your best friend to reach your financial goals.”