It’s been another slow week of central bank watching for markets.
Yesterday, we saw the latest release of Aussie inflation data for May.
The good news is that inflation is still coming down, and quicker than many thought. That helped buoy local stocks yesterday in what’s been a long stretch of sideways momentum.
But despite the better-than-expected data, it’s still Philip Lowe who will decide our fate next week.
Because when the RBA next meets on Tuesday, they will have a difficult decision to make. Do they send us careening further forward to a looming recession, or do they risk letting inflation linger for longer?
We’ll have to find out next week…
But all signs suggest that more rate rises will come at some point.
Even if the RBA decides to pause for July, don’t be surprised if more hikes follow in August or September. After all, like the US and Europe, these central bankers are desperate to beat down inflation as best they can.
Which is why investors will have to play their game of chicken a little longer.
A game that hinges on crashing global output or delivering a miraculous soft landing.
If you want my advice as to how to prepare your portfolio for this…don’t play their game.
Play your own!
Market beaters
The trick to investing in an environment like the one we’re in is logic.
You need to be logical in your risk tolerance and strategy. Logical in the conviction of the stocks you’re picking. And logical in your own thinking and mindset.
Like I said last week, the best investors in the world have mastered their emotions.
Logic may not always determine market movement, but it damn well delivers solid returns. Because while trends come and go, cycles and stability are more reliable in times like these.
Granted, I’m not trying to suggest you can’t still make good money out of speculative plays. You just might need to adjust your expectations in terms of the time frame of your returns…
I’m a big believer in the long-term opportunities up for grabs right now.
But I also know that I’m in the minority with that view.
Your average investor is probably just looking to keep their head above water right now. After all, it’s not easy to look at a portfolio and see red day after day.
But like I said, logic is the key.
Because if you’ve played this game before, you’ll know that there are ways to win.
There are certain sectors, certain stocks that thrive in markets like these.
As our own investment director, Greg Canavan, puts it:
‘When the market starts to get fearful, and selling takes place based on that fear, you know there could be some great investment opportunities.’
The best offence is a good defence
In terms of where those great investment opportunities may be, look for value.
There are a lot of overlooked, unloved, and resilient stocks out there right now. Businesses that are still making solid returns despite copping a share price beating.
The retail sector, as an example, is a great place to look for this kind of trade right now. Because while it’s likely to be one of the hardest hit sectors should a recession hit us, there are many sticky goods and services that will endure.
You have to look for the best defensive plays.
After all, in the short to mid-term, they could deliver some of the best returns.
As for Greg, he has his eyes on a much bigger prize.
His latest investment thesis hinges on a much simpler theme. One that is tried and true but has somehow been overshadowed in recent years.
Perhaps the mania of the pandemic has made people forget. But there’s an obvious ‘safe haven’ for investors looking for solid returns in these volatile times.
But it isn’t my idea to share…
You’ll have to wait for Greg to tell you himself, which he will very soon.
Keep an eye on your inbox in the coming days because you won’t want to miss this investment idea.
Regards,
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Ryan Clarkson-Ledward,
Editor, Money Morning
