"This Market Is So Confusing!"

Don't try to time the market or guess what the Fed will do... SPECIAL OPPORTUNITIES [The Oxford Club Special Opportunities]( "This Market Is So Confusing!" Matt Benjamin, Senior Markets Expert, The Oxford Club [Matt Benajmin] This week, I returned to work after seven days at the beach. The sun and sand were a glorious tonic to the previous dismal months of pandemic lockdown. I was reinvigorated! But, apparently, I missed an important week because I was immediately confused about what had been going on in markets. (Side note: I'm okay with being confused about this market - temporarily - because just about everyone else is too.) It all starts with the Federal Reserve. In fact, let's go all the way back to former Fed Chairman Paul Volcker... Problem-Solving Like the Fed As you probably know, the Fed has what is called a "dual mandate." That is, it has two goals: maximize U.S. employment and keep prices stable (or keep [inflation]( under control). What makes the Fed's job tricky is that much of the time these two goals are at odds. If you juice the economy so there are more jobs and higher employment, you risk causing inflation. If you tamp down on growth to control inflation, you will probably cause some unemployment. Enter Paul Volcker in the summer of 1979. [Inflation in the U.S. was out of control]( and consistently in the double digits. It hovered around 12% as he joined the Fed, and it peaked a few months later at a whopping 14.8%. Volcker - a giant of a man at 6 feet 7 inches - brought the hammer down. He made it immediately clear he would focus on inflation to the detriment of employment. He raised the Fed's target interest rate - the federal funds rate - to 20% by June 1981. That rapidly drove the inflation rate down to the single digits by late 1981 - and to less than 4% by late 1982. In doing so, however, Volcker pushed the [unemployment rate]( from less than 6% to nearly 11%. (The federal funds rate is the basis for all kinds of interest rates and lending, so raising it curbs lending and, eventually, economic growth.) The Anti-Volcker Fast-forward to now, the post-COVID-19 era. For months, current Fed Chairman Jerome Powell has made it abundantly clear that he would be the anti-Volcker. In other words, he promised to do just the opposite of what his towering predecessor did and focus on creating jobs, even though that risked higher inflation. Since mid-2020, the Fed has said that it would allow the economy to run hot in order to reemploy most of the people thrown out of work by the pandemic. Agree or disagree with that strategy, at least it was clear. Until last week, that is. In a press conference on June 16, after the Fed's two-day interest rate-setting committee meeting, Powell sounded much more hawkish than expected. He put unexpected emphasis on the need to keep inflation in check. "It's fundamental in our framework, our new framework, to assure that longer-term inflation expectations are anchored at a place that is consistent with our goal," Powell said. The problem is many investors don't believe him. Barron's announced as much in this headline: "Markets to the Fed: Your Hawkish Turn Isn't Fooling Anyone." MarketWatch is of the opinion that the Fed is likely to make hawkish sounds but says, "Don't be fooled." This is problematic. Because the Fed is so powerful and can move markets with both its words and deeds, it has to be utterly credible. But suddenly, it's not. And hence my - and the market's - confusion. Stocks dropped on Powell's June 16 press conference but rebounded later that day (possibly because some investors were relieved the Fed decided to address higher inflation concerns). They dropped on June 17 as the reality of interest rate hikes set in, rebounded later that day, fell again on that Friday and made a strong move higher this week. Talk about a roller coaster of confusion! Here's a chart of the S&P 500 Index during the chaos... [Which Way Do We Go?] If, as investors, we're not supposed to fight the Fed, shouldn't we at least know what it's trying to do? Wait and Watch Powell spoke publicly before a U.S. House of Representatives subcommittee on Tuesday to clarify his stance. "We will not raise interest rates preemptively because we fear the possible onset of inflation. We will wait for evidence of actual inflation or other imbalances," he said. The market didn't respond much to his statements, but you should still keep an eye on it. Meanwhile, investors should stay the course. If you've picked good companies with solid fundamentals (revenue and earnings growth, good management, etc.), your portfolio will weather this confusing spell. But keep one thing in mind: Don't try to time the market or guess what the Fed will do. And if you are worried about rising inflation (as many of us are), there are great ways to hedge against it and the many economic disruptions it is sure to cause. Chief Income Strategist Marc Lichtenfeld has [three great plays to beat rising inflation](. Marc also has an extra hedge that investors should consider right now if they think inflation will get out of control. [Find out about that here.]( Enjoy your weekend, Matt SPONSORED [A Completely FREE Gold Stock]( Backed by the world's most famous investor (he's invested more than $560 MILLION)... This company produces gold for just $894 an ounce! Get the company's name and FULL ticker symbol - [click here](. [The Oxford Club] You are receiving this email because you subscribed to Oxford Club Special Opportunities. Oxford Club Special Opportunities is published by The Oxford Club. Questions? Check out our [FAQs](. Trying to reach us? [Contact us here.]( Please do not reply to this email as it goes to an unmonitored inbox. 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