New York (CNN) Wall Street was hit by a number of complex signals about the health of the economy last month. From the banking crisis to weakening jobs data to slowing inflation, and now the start of earnings season, investors remain extremely bullish.
But minutes of the Federal Reserve’s March meeting revealed last week that officials believe the economy will enter a recession later this year. While that’s not new news to investors who worried that a recession was on the horizon last year, it does mean that markets may be changing.
So, how can investors protect their portfolios? Investors say that there is no one asset that Wall Street should pile all their bets on, but there are fundamentals that should underlie their investment strategies.
Jimmy Chang, chief investment officer at the Rockefeller Global Family Office, says he advises clients to be patient, defensive and selective when navigating the market.
In other words, investors should make decisions based on logic, not a fear of losing.
“You chase these rallies and then fail – you’re left holding the bag,” he said.
Chang also recommends that investors remain defensive by investing in high-quality blue-chip stocks with solid balance sheets and dry powder savings.
Doug Fincher, portfolio manager at Ionic Capital Management, says investors should prepare their portfolios against inflation.
The Personal Consumption Expenditures price index rose 5% for the 12 months ending in February, indicating that inflation remains higher than the Fed’s 2% target.
Coupled with the fact that the central bank has signaled that it plans to stop raising interest rates sometime this year, it is possible that inflation may prove to be more than Wall Street expects.
“It’s the boogeyman of traditional investing,” Fincher said.
He manages the Ionic Inflation Protection exchange-traded fund, which seeks to specifically perform well during periods of high inflation. The portfolio’s core exposure is inflation swaps, which are transactions where an investor agrees to exchange fixed payments for floating payments tied to the inflation rate. The fund also invests in short-term Treasury Inflation Protected Securities.
Megan Horneman, chief investment officer at Verdence Capital Advisors, says her firm keeps its portfolio in cash. A popular safe haven, cash is a better alternative to other perceived safe havens like gold, which tend to be volatile and very volatile, he said.
Investors have rushed to money market funds in recent weeks after the banking crisis both shook their confidence in the banking system and sent ripples through the market.
“Money actually gets you something at this point,” Horneman said. “You have to look long enough.”
JPMorgan Chase blew past earnings expectations
Earnings season kicked off on Friday with big earnings from the country’s biggest banks.
Perhaps the most notable from the bunch is JPMorgan Chase, which reported record revenue and an earnings beat for its most recent quarter.
The bank has $3.67 trillion in assets, making it the nation’s largest bank and a bellwether for the economy. Strong earnings reports from the New York-based bank and its peers including Wells Fargo, Citigroup and PNC Financial Services indicate a promising start to the earnings season.
Charles Schwab, Goldman Sachs, Bank of America and Morgan Stanley report next week.
Here are some key takeaways from JPMorgan Chase’s first quarter earnings:
- The company guided for net interest income of nearly $81 billion in 2023, up $7 billion from earlier estimates. This is especially important because this earnings season is about guidance, as investors test whether the economy is headed for a recession and which companies are able to weather a potential upturn. .
- CEO Jamie Dimon said in the post-earnings conference call that while financial conditions are relatively tight after the collapse of Silicon Valley Bank and Signature Bank, he does not see a credit crunch. But the likelihood of a recession is higher now, he said.
- The company said its portfolio’s exposure to the office sector is less than 10%, addressing concerns that the $20 trillion commercial real estate industry could be the next space to see turmoil.
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Monday: Empire State manufacturing index and homebuilder confidence index. Earnings report from Charles Schwab (SCHW).
Tuesday: Earnings reports from Bank of America (BAC), Goldman Sachs (GS), Johnson & Johnson (JNJ), Netflix (NFLX), United Airlines (UAL) and Western Alliance Bancorp (WAL).
Wednesday: Earnings reports from Citizens Financial Group (CFG), Morgan Stanley (MS), Tesla (TSLA) and International Business Machines (IBM). Speech from NY Federal Reserve President John Williams.
Thursday: Philadelphia Fed manufacturing index, jobless claims, mortgage rates, US key economic indicators and current home sales. Earnings reports from AutoNation (AN) and American Express (AXP).
Friday: Manufacturing PMI and services PMI. Earnings report from Procter & Gamble (PG).