Worried about higher interest rates dampening the S&P 500s bull market? Well America’s top portfolio strategist says to stop worrying.
Dennis DeBusschere, who was voted as the top U.S. portfolio strategist in last year’s Institutional Investor survey, says that his “single highest conviction” in 2022 is that inflation adjusted bond yields will rise along with Federal Reserve interest rates.
“An important point to internalize is that Fed policy is still FAR from restrictive. Paraphrasing Jason Furman, who was well ahead of the shift in Fed policy (and some say helped cause the shift), monetary policy should continue to be expansionary, just not extremely so,” DeBusschere wrote in a note to clients Thursday.
Debusschere expects corporate profits to continue to expand amid a strengthening economy even as higher rates create pressure on companies with high equity valuations.
“The Fed wants higher real yields and has the tools to make that happen, so investors should position for that outcome,” DeBusschere said.
DeBusschere’s 22V Research firm expects the S&P 500 to end the year at 5,040. The Index was at about 4,700 at last check Thursday afternoon.
High-value technology stocks has already suffered heavily in 2022 as the real yield on 10-year Treasury bonds has climbed more than 30 basis points over the past four sessions.
22V advises investors to favor companies set to benefit from the strong economic growth the firm expects in 2022, such as financial, energy and industrial shares.