Morning Market Brief: October 20, 2023

Preparing your portfolio for high interest rates

With inflation subsiding, central banks have or are preparing to slow or pause their interest-rate hikes. The potential for more rate increases is still on the table, with inflation still above targets, while any rate reductions seem unlikely in the short term. In response, we must prepare our portfolios for a period of rates staying higher for longer.?

• CIBC Asset Management’s Chief Investment Officer, Luc de la Durantaye, says portfolios must adapt to this new environment. The good news is there are tactical opportunities that can boost the performance of your portfolio.
• In equities, de la Durantaye believes price-earnings multiples are a bit high, so you should focus on having exposure to companies that are able to sustain their earnings. Higher interest rates could cause volatility in equity markets, pushing these companies to more attractive prices.
• Given the slowdown in economic growth and inverted yield curve, de la Durantaye believes investors should have exposure to bonds at the shorter end of the yield curve. Should the global economy weaken further and fall into a recession, it might present an opportunity to move back into longer-term bonds.
• Opportunities abound in currency markets. With the gap in interest-rate differentials high, there are opportunities to see some relatively wide swings in currencies. De la Durantaye says you might want to overweight currencies tied to higher interest rates.

Most economists agree that households and businesses must adapt to a period of higher interest rates. It is an excellent time to review your portfolio and make tactical changes based on this evolving economic environment. Change often brings about opportunity. See the article and listen to the podcast: What higher-for-longer rates mean for investors.

At?CIBC Private Wealth, we aim to take a comprehensive approach to managing, building and protecting your wealth. If you'd like to discuss this market and economic update in more detail, please get in touch with your advisor any time.