How will “higher for longer” inflation and interest rates effect sectors like Finance and Industrials?

[u/NextYearIsHere]

If you believe that inflation will remain sticky and interest rates are getting at most 1-2 cuts in the next twelve to twenty-four months, how do you see that effecting sectors like industrials and financials? I have modest investments in vanguard ETFs in those sectors (VIS & VFH) and wonder if now is the time to add to them or just hold.

I believe Powell and think we won’t be returning to previous levels for quite awhile. If this happens, what macro effect would that have?

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[u/BlazingHowl777]

It’ll just mainly slow everything down like it already has, no crash most likely unless then double it and give it to the next recession like 08 lol.

[u/TigersBeatLions]

rates will be increased, not decreased

[u/dubov]

Should be good for financials. Specifically, higher long term interest rates.

Industrials, don't know

[u/THICC_DICC_PRICC]

Just listen to Powell’s last full speech, he very clearly explains the mechanisms with examples on why he’s not worried about the stickiness and that rate cuts will be coming soon this year, just not as soon as they anticipated at the beginning of the year.

Seriously, there’s a wealth of information directly from the source. Read/listen to that instead of what clueless Redditors and click baiting journalists say

[u/AmericanSahara → u/THICC_DICC_PRICC]

I'd rather observe what they do instead of being distracted by their bull market manure about rates cuts. It maybe a decade or two before we see some serious rate cuts.

[u/FlatSmoke9945 → u/THICC_DICC_PRICC]

Yes a wealth of information from the same guy that said inflation was transitory... he's talking out of his behind

[u/iqisoverrated]

affect

/petpeeve

[u/Fibocrypto]

Wars are inflationary

[u/AmericanSahara]

I believe that in the long term that the yield curve will normalize by long term rates increasing instead of short term rates decreasing. Eventually people will get used to 5% or 6% treasury rates and 7% or 8% mortgage rates.

The driver of high rates and inflation will be from trade tariffs, labor shortage, housing shortage and continued strong spending and investing for a decade or two by those lucky people who own a million dollar house and have a 3% mortgage.

Stock market prices and housing prices will probably not grow more than inflation plus two percent. More people will invest in bonds because of the higher rates - short term bonds now and longer term bonds later.

[u/LanceX2 → u/AmericanSahara]

House prices are too high to ger used to 7-8% rates

[u/AmericanSahara → u/LanceX2]

Lower interest rates won't make housing affordable unless you expect rates to return to 3%.

The way to make housing affordable is for the government to enact builder incentives to encourage builders to overbuild so increasing vacancy rates will drive down prices and rents. But, apparently nobody in power wants to have the prices come down and rents to decline. The people are going to have to organize to get a change in the US housing policy. The Fed can't do anything about the housing shortage. If they lower rates, the price of houses will only go up faster.

[u/LanceX2 → u/AmericanSahara]

5% is a HUGE difference than 7.5. Hell 5.5

300K house every 1% is 250$ a month.

and yes houze prices will go up if people flood the market. I hope they dont but it is what it is.

[u/AmericanSahara → u/LanceX2]

The banks are only one group of corporate greed making money off of the housing shortage and the whole country seems to be happy with it.

If you have some power, as I said builder incentives need to be enacted to intentionally overbuild to drive down shelter costs to make housing affordable again.

If you are priced out of the housing and rental markets, consider sharing housing with friends or relatives. Over the past 50 years, the size of homes has increased yet the number of persons per household has decreased. Maybe the trend should reverse.

If you are homeless, organize with other homeless and build shanty towns and be collectively prepared to confront the government when they try to remove the shanty towns.

If you are saving to buy a home, invest about 50% in short-term bonds or t-bill fund, and invest the other 50% in an index stock fund that owns growth stocks, dividend stocks and foreign stocks.

If you are very wealthy, allocate your gross worth to about 25% real estate, 25% growth stocks, 12.5% dividend stocks, 12.5% foreign stocks, and 25% t-bill funds. When interest rates have reached a peak, then sell some t-bills and buy longer term bonds. If the US Dollar gets weak, sell some foreign stocks and buy domestic stocks such as an S&P 500 index stock fund. If real estate values crash, consider buying a rental property or second home.

Putting all your money into real estate isn't very promising because affordability is going to keep getting worse and houses may simply stop selling or be over taxed when things break and the political situation changes. If stocks decline, nobody can afford to buy houses until prices decline or rates come down to 3 or 4 percent.

[u/Gravybees]

The best part is that it will create buying opportunities in great companies whose stock prices will fall.  

[u/trader_dennis]

I really don't think you can run any scenarios past November 2024 and implementation of the vote in Q1 2025..

If Biden wins with a thin margin in the Senate is far different than Trump winning with the Senate and holding the house. Two vastly different scenarios, though the likely one that will keep the economic sanity is a split in the House and Senate which is probably the likeliest outcome.

Either trifecta is probably very bad for inflation going forward. Split government will be much better for rates and overall the economy in general.

So many questions. Keep yourself nimble.

[u/bro-v-wade → u/trader_dennis]

Even on a normal year trying to predict anything meaningful beyond the current quarter is impossible. November is a stretch, even with a known entity like an election. No one can predict six months out, not BlackRock, not State Street, not JP Morgan, no one.

Everyone is playing this game in real time. The best of the really good ones are hitting 30-40% success a week out, and the big three can do that a couple of months out in easier to read, no headline market conditions.

Everything else is useless articles designed to get people clicking and paying monthly subscriptions for well written coin flips.

Also, for what it's worth: nothing Powell or anyone at the Fed does happens with an eye to the future. Every single decision is made on a reactionary basis. He and every serious economist who has ever taken a leadership role at the Fed is very clear about that. Recessions cannot be predicted, and the Fed does not pretend that they understand what is going to happen next. They only analyze, rigorously, what has happened in the past, and attempt to fit policy in such a way that they can try to avoid missteps of the past.

[u/trader_dennis → u/bro-v-wade]

Definitely agree. Powell is looking for reasons to lower so if I had to bet, there will be more than 2 cuts in 24 months. My opinion is u/NextYearIsHere thesis is likely off. But Powell is data dependent so like you say, who the hell knows and like I say, so much is dependent on the election..

[u/bust-the-shorts]

When you see all of these huge stock buybacks, it’s obvious that companies like Google Amazon Apple etc will just pay cash for anything they want. Interest rates are meaningless to their growth

[u/sevseg_decoder → u/bust-the-shorts]

Yeah but that’s tech. 

Despite what Reddit will tell you the tech industry already ballooned enough from the low rates, none of these companies lack the cash flow to do anything they want at this point. It’s industries that still need to use debt to grow who are stalled and will stay stalled for a bit.

[u/worldDev → u/sevseg_decoder]

That’s just old guard unicorn tech. Most tech is running on debt and in a lot of trouble as a result of interest rates.

[u/Aduialion]

I'm bullshitting here, but i think when the federal interest rate goes down the market will take off then resettle as the rate will only go down to reasonable levels, not 0.

[u/sojithesoulja → u/Aduialion]

If we rip to 6969 SPX and then we finally get a cut we aren't rallying more.

[u/big-rob512 → u/Aduialion]

It will basically just save small caps with variable rate loans, megacaps are fine no matter what at this point. Companies like Microsoft can issue debt lower than the treasury.

[u/Luxferro → u/Aduialion]

The big question is do companies get more greedy, since everyone has more purchase power, which causes inflation to go up again?

[u/FxHorizonTrading]

I doubt its gonna happen.. if it does tho, the effect to the downside is prolly very limited and we might just grind higher anyway until the first cuts and reality hits back..