Until recently, the Fed has been the only game in town providing stimulus to the economy. Now, we believe members of the Federal Reserve have to contemplate the potential effects of President Trump’s pro-growth fiscal policy:
- We think the Fed has to be careful in this new environment, and that they will stick with modest, gradual rate hikes until they see growth in real GDP getting closer to 3%.
- In our opinion, the Fed wants to get out of this "lower-for-longer" environment.
We’ve seen low interest rates rencourage people to stretch for yield by purchasing stocks that pay high dividends like consumer staples and utilities. As a result we believe those sectors are not cheap. Bonds provide an alternative for those seeking income.