Throughout the Fed’s fight against inflation, the central bank’s leadership has warned investors that inflation might require a higher-for-longer regime to be tamed.
Markets, in turn, started this year expecting as many as four different rate cuts. Something has to give, then, between those two ideas. And with news that inflation grew in December, once again investors may want to look to the adaptability found in active investing.
The consumer price index grew 0.3% in December, a 0.2% rise from November. While some areas have seen inflation drop, certain market segments like rent remain challenges. While inflation has still cooled significantly from this time last year, its picking up once again throws a wrench in the market’s vision of imminent cuts.
Of course, this could just be a blip in the Fed’s steady pathing toward a soft landing. Progress on whipping inflation doesn’t necessarily have to be linear. Nonetheless, it underscores why remaining adaptable can be key in an uncertain market environment. Active investing emphasizes flexibility compared to passive strategies that have to follow their indexes. Active strategies, by contrast, can adapt week to week or even day to day to events, data drops, or changes in perspective.
What’s more, active investing also often applies tighter scrutiny to a particular firm, leaning on managers’ expertise. Frequently, that means taking a bottom-up, fundamental research approach to stock opportunities. That can help fund managers get a better sense of how a company’s balance sheet might respond to a prolonged high interest rate regime. Especially as inflation resists efforts to tame it, that can be a strong tool in an overall allocation for 2024.
T. Rowe Price offers a suite of active funds like the T. Rowe Price Capital Appreciation Equity ETF (TCAF ), which could fill an active investing role. For investors concerned by stubborn inflation, keep an eye on active opportunities.
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