Dealing with inflation: what strategies should investors consider?
Eugene Yashin

US economics, inflation and geopolitics

The Fed is determined to contain inflation with everything in its toolbox. During its March meeting, the Fed signaled a large and rapid increase in its policy rate over the next two years and struck a hawkish tone, indicating it is ready to go beyond normalizing to try to tame inflation. As expected, the Federal Reserve kicked off its hiking cycle with a quarter-point increase — the first since 2018. The Fed also projected the fed funds rate to reach 2.8% by the end of 2023. Whether the Fed will fully deliver on rate hikes will depend on its assessment of the impact on growth and employment — nothing is set in stone.

A strong jobs market, which included the addition of an estimated 1.16 million nonfarm payroll jobs during the first two months of 2022, gives the central bank more room to focus on the other half of its dual mandate, specifically promoting stable pricing. The Labor Department reports showed that both consumer and producer prices jumped markedly in February, with respective 12-month increases of 7.9% and 10.0%.

The ongoing war in Ukraine and the retaliatory sanctions against Russia are causing significant disruptions in the global oil supply. Resulting in higher energy costs may lead to a slowdown in economic growth, as consumers are forced to defer spending on other discretionary products and services. This may offset some of the near-term boost the economy gets from an improving health situation, as concerns about the COVID-19 Omicron variant fade.

Global economics

According to JP Morgan, central banks are facing a difficult challenge in setting a policy to promote low and stable inflation alongside full employment. On the surface, they are displaying limited sensitivity to near-term downside growth risks as they guide toward significant policy tightening this year. At the same time, central banks appear to believe that their actions will not result in subpar growth in order to contain rising medium-term inflation risks. However, the reality is that central bank tightening likely will impact both near-term growth and medium-term inflation outcomes that depart from their tolerance zones. Despite hawkish near-term guidance, developed markets’ central banks remain averse to developments that would risk recession this year. JP Morgan lowered its US and global GDP forecasts for 2022 from 3.6% to 3.3% and from 4.2% to 3.4% respectively. 

Portfolio management

Currently, US economy rate sensitivity is the key consideration for portfolio management. The economic cycle could be at risk if the Fed tightens too much. Market participants follow mortgage rates and housing demand dynamics to assess the impact of higher interest rates on the economy. So far, low inventories and high demand are offsetting higher mortgage rates. 

Recently, Goldman Sachs (GS) published a study citing tactical strategies, which improved diversified multi-asset portfolios during past periods of higher inflation and/or slower economic growth. At Signet we have already implemented most of these enhancements in our portfolios. Here are some highlights from the study:

• Real assets

Allocations to real assets look more attractive with higher inflation. Broadly defined, real assets are mostly physical assets with an intrinsic value due to their substance or properties. This includes commodities and real estate. In the event of high and rising inflation periods, real assets can offer both the opportunity for uncorrelated returns and competitive real return potential. 

Signet investment team added a real assets tactical tilt to multi-asset portfolios in 2021.

• Value–Growth barbell and sector tilts

Isolating equity styles and themes can improve diversification. This strategy combines broader diversification with market rotation. Factor or style investing has become popular since the seminal paper from Fama and French (1993). Especially during periods with high and rising inflation, such as the 1970s, value stocks generally outperformed growth materially in the US. The correlation between growth and value has declined sharply since the COVID-19 crisis, pointing to diversification benefits from balanced exposure to value and growth styles.

Closely related has been the outperformance of the US Technology sector last cycle, which generated strong top-line growth while many old economy sectors such as Banks, Utilities, Telecoms, and Energy faced macro and micro headwinds. With higher inflation, value stocks and sectors like Energy and Banks tend to outperform. There are risks, however. As inflation expectations increase, so does the potential for disappointments and negative growth shocks, e.g., due to excessive monetary policy tightening. Investors need to balance inflation and growth risk, which suggests exposure to quality, low volatility, and dividend stocks.

Valuation spreads have narrowed (see Chart 1 below). 

Chart 1: Valuation Spread through February 2022

Source: Signet Financial Management, LLC

Value no longer has a huge advantage compared to Growth, as we saw in 2020-21. With slower economic growth, we might see investors crave profitable Growth companies again. So far, the rotation to Value continues with brief interruptions due to higher risk aversion (see Chart 2 below).

Chart 2: Large Growth and Value SP Indexes Alpha 2022 YTD (as of 03/25/2022)

Source: Signet Financial Management, LLC

We currently favor a barbell composition in stock portfolios, that mixes profitable Growth with cyclical Value themes and emphasizes Profitability. 

• Stock-like bonds and bond-like equities

A balanced portfolio is likely to perform better if it has cheap stocks with growth and bonds that offer attractive yields after inflation. But growth stocks are expensive and there are few bonds with positive real yields and the potential to buffer equities. In the search for growth and yield, multi-asset investors can reverse roles and look at equity-like bonds, such as convertibles, or bond-like equities, such as defensive, high dividend yield stocks. 

Last cycle and during the COVID-19 crisis, many high-yielding stocks disappointed investors. However, during the 1970s stagflation, high dividend yield stocks performed well. Dividend investing also impressed during the 2000s, when the Tech Bubble burst. 

Both high dividend yield stocks and convertibles are positively correlated with US 10-year yields — and the correlation with the S&P 500 is usually well below 1. This points to diversification benefits for US balanced portfolios. High dividend yield stocks are attractive in multi-asset portfolios, especially for investors focused on income. However, investors need to balance the growth/yield trade-off — the highest yielding stocks often have weak long-term growth prospects and could end up as ‘value traps’. This is where skilled active management can add value.

In our high dividend and quality dividend equity strategies, the Signet team pays attention not only to dividends for current yield but also to growth and profitability characteristics. 

Allocations to convertibles can be attractive for multi-asset portfolios as they allow more equity exposure with lower drawdown risk. US convertibles delivered nearly the same return as the S&P 500 since 2000 but better risk-adjusted-performance. However, convertible markets have some unique risks due to the relatively small and less liquid markets compared with equity and credit markets. The rising cost of debt, both due to higher rates and wider credit spreads, coupled with elevated equity volatility, could drive increased issuance and opportunities in convertibles.

• International equities and bonds

GS expects more opportunities to diversify across regions. After more than a decade of US outperformance, global equity benchmarks and portfolios are tilted to the US. Non-US equities could offer diversification benefits, as regional equity and bond correlations are likely to be lower going forward.

In the last 30 years, there has been little benefit from regional diversification within equities or bonds, while diversification across assets was very effective. In part, this was due to increasing global economic and capital markets integration since the 1990s. In addition, larger companies generally became more global with a larger proportion of revenues derived outside home markets. Since the COVID-19 crisis, there has been a large decline in regional equity correlations. This reflects less synchronized business cycles, in part due to local COVID-19 waves and different lockdown policies, but also due to diverging fiscal and monetary policies.

GS expects less US equity outperformance in the coming years compared with the last cycle. Higher equity valuations and margins in the US could become headwinds for returns while weaker growth for non-US equities is better discounted or trend growth might pick up. In periods of elevated rates volatility, in particular, allocations to non-US equities help diversify rate shock risk — this has been the case since the start of this year. GS expects regional earnings and dividend growth differentials to narrow in the Post-Pandemic Cycle

As for bonds, with higher inflation and desynchronized monetary policy across regions, there is more potential for return dispersion across global bond markets. While the opportunity set in developed markets fixed income is limited, there are opportunities from international bond diversification in select emerging markets. 

The Signet investment team tactically adjusts exposure to foreign equity and bond markets in our multi-asset strategies.

• Private markets

Selective private equity, real estate, and debt investments can enhance the risk/reward of multi-asset portfolios. With lower returns and less diversification potential in public markets, private markets have grown materially. A key problem, however, is that they often have limited available transparent and comparable history, which makes it difficult to assess their risks and diversification benefits — they can also increase duration, leverage, and illiquidity risk in the portfolio.

Since the 1980s private equity (PE) and venture capital (VC) have offered attractive returns vs. the S&P 500, albeit mixed over time. PE broadly comprises leveraged buyouts, venture capital (early-stage PE), growth capital, distressed investments, and mezzanine capital. PE outperformed the S&P 500 in the 2000s but much less post-Great Financial Crisis — VC performed particularly strongly in the run-up to the Tech Bubble. 

GS thinks private markets can offer selective, attractive investment opportunities for multi-asset investors, especially those that benefit from the smoothed performance, e.g., due to regulations. Also, private asset managers might be able to identify attractive assets that are not available in public markets. However, with increased competition there is a risk of lower returns, making manager selection more important.

The Signet investment team continues to be proactive in many aspects of portfolio management. We are constantly on the lookout for opportunities to tactically adjust our strategies as we seek optimal investment solutions for clients.  

The information and opinions included in this document are for background purposes only, are not intended to be full or complete, and should not be viewed as an indication of future results. The information sources used in this letter are, Jeremy Siegel, Ph.D. (, Goldman Sachs, JP Morgan, Empirical Research Partners, Value Line, BlackRock, Ned Davis Research, First Trust, Citi research, and Nuveen.


Past performance may not be indicative of future results.

Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that their future performance will be profitable, equal to any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.

The statements made in this newsletter are, to the best of our ability and knowledge, accurate as of the date they were originally made. But due to various factors, including changing market conditions and/or applicable laws, the content may in the future no longer be reflective of current opinions or positions.

Any forward-looking statements, information, and opinions including descriptions of anticipated market changes and expectations of future activity contained in this newsletter are based upon reasonable estimates and assumptions. However, they are inherently uncertain, and actual events or results may differ materially from those reflected in the newsletter.

Nothing in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice. Please remember to contact Signet Financial Management, LLC, if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and/or services. No portion of the newsletter content should be construed as legal, tax, or accounting advice.

A copy of Signet Financial Management, LLC’s current written disclosure statements discussing our advisory services, fees, investment advisory personnel, and operations are available upon request.

You might also like
July 1, 2024
Understand the Fed's 'high for longer' rate policy, easing inflation, and economic impacts. Insights on US and global trends for 2024.
Read more
June 3, 2024
Explore the latest US economic insights, inflation trends, and Fed policies in Signet's June market commentary.
Read more
May 1, 2024
Eugene Yashin explores the latest inflation trends and Federal Reserve strategies as we delve into the challenges of reaching the 2% target.
Read more
The Federal Reserve building in spring
April 1, 2024
February job growth exceeds expectations, signaling economic strength amid inflation. Learn how it affects Fed rate plans and what investors should do about it.
Read more
March 4, 2024
Stay informed on key economic updates: January's inflation spike, the Fed's monetary policy, global GDP growth, and S&P 500 earnings highlights.
Read more
February 1, 2024
U.S. economy grows 3.1% in 2023, defying recession fears with a robust labor market fueling consumer spending. Explore insights on inflation, Fed policies, and the 2024 economic ou...
Read more
December 1, 2023
Prepare for 2024 with our market projections: economic forecasts, interest rate impacts, and investment strategies for balancing your portfolio in the upcoming year.
Read more
November 1, 2023
Strong start to Q3 earnings season, with major banks exceeding forecasts. However, the current financial landscape presents challenges, particularly with the bear steepening of the...
Read more
Why the Fed might delay interest rate adjustments
October 2, 2023
The U.S. inflation situation remains uncertain, with the potential for another rate hike. Read how Signet adjusts portfolio strategies to navigate this intricate landscape.
Read more
Jigsaw puzzle and graph arrow growth up as an illustration of the potential interest rate hike to tame the US inflation.
September 5, 2023
The U.S. inflation situation remains uncertain, with the potential for another rate hike. Read how Signet adjusts portfolio strategies to navigate this intricate landscape.
Read more
August 1, 2023
The US economy shows positive signs with cooling inflation, boosting equities. With a strong consumer and solid job market, fears of a recession lessen.
Read more
July 6, 2023
Explore the dynamics of the US economy, inflation, and the impending Fed's rate hike decision, alongside the potential impact of AI on the economy.
Read more
The US Federal Reserve building
June 2, 2023
Earnings season proved better than expected. Inflation slowed. The Fed may be done with rate hikes. Read how Signet is positioning portfolios for the latest market developments and...
Read more
Lower Manhattan skyline with the Financial District
May 1, 2023
Earnings season is underway, and investors are watching closely. Find out what the latest economic data mean and how stocks are holding up against inflation
Read more
April 4, 2023
Eugene Yashin gives a comprehensive analysis of the current economic landscape and shares a macro look at the banking crisis and its implications for the markets.
Read more
March 6, 2023
Despite the short-term softening of corporate profit data, we should expect the stock market and growth rates to start advancing even amidst a recession.
Read more
December 5, 2022
Stocks and bonds continued their rebound in November. Chief Investment Officer, Eugene Yashin, provides key insights on today’s markets and what may lie ahead.
Read more
November 1, 2022
Monetary policy tightening may give way to a recession, but share prices do not currently reflect that risk. Market analysts share their sector forecast and portfolio recommendatio...
Read more
October 3, 2022
Nobody in the stock market feels good right now, which is a sign that things could change soon. The current market drop is an overreaction which investors can exploit.
Read more
September 1, 2022
Inflation remains high, yet the mighty U.S. consumer has proven resilient and earnings and projections came out stronger than had been feared.
Read more
August 1, 2022
The stock market took notice of the slowing economy and took off from recent lows. The bearishness on earnings remains unanimous though.
Read more
bear market stock charts
July 6, 2022
How much further can equities adjust before the trough? What will the new cycle be like? Eugene Yashin addresses the critical issues for investors in the bear market.
Read more
A miniature consumer figurine with a shopping cart walking on the bar code with us dollar banknotes money
May 31, 2022
The US economy contracted in Q1 and retailers reading looked discouraging, but expansion prevails in 2022 and the spike in inflation is not going long-term.
Read more
May 2, 2022
Eugene Yashin reviews 3 themes impacting investors: inflation, rates, and earnings. What equity portfolio management strategies should investors employ?
Read more
February 28, 2022
Historically, geopolitical events do not matter much for equities, but rising oil prices spur the Fed to act more swiftly. Eugene Yashin shares the market projections.
Read more
February 1, 2022
As the markets go through corrections, creating buying opportunities for long-term investors, what should you pay more attention to? Eugene Yashin and Steve Tuttle share the marke...
Read more
December 30, 2021
Heading into the new year, look back on the positives and negatives for investors in 2021. Check out the highlights from Goldman Sachs, J.P. Morgan, and Siegel.
Read more
December 2, 2021
Interest rate uncertainty and Omicron implications unnerve the markets, while a strong economy and earnings support the existing sentiment.
Read more
November 1, 2021
The market has been very volatile recently. In between higher earnings expectations and concerns about a possible market correction, what investors should do?
Read more
October 4, 2021
Delta fear factor, inflation concerns, the Fed’s tapering make investors rely on mega-cap growers, but the projections from the broader market stay positive.
Read more
September 1, 2021
Employment, industrial production, and factory usage are strengthening. Yet the Delta variant's impact on growth and inflation could be larger than expected.
Read more
August 2, 2021
Despite the growth bounce there're concerns around the Delta wave impacting the market and Tech serves as a safety resort against potentially slower economy.
Read more
gains in exports
June 28, 2021
GDP is on target to grow above 6% with gains in exports, a decline in jobless filings, a rebound in consumer sentiment, and rising industrial production.
Read more
June 1, 2021
Declines in jobless filings, stability in retail sales, gains in production. How does the US economy recovery affect stock market and portfolio management?
Read more
May 3, 2021
Amid earnings season, a critical question now is whether the entirety of the economic recovery has already been discounted in the stock and bond markets.
Read more
April 1, 2021
With economic growth projections and huge liquidity we expect inflation to kick in. Read how we adjust our postures to address the changing environment.
Read more
vaccines support markets
March 1, 2021
The vaccination results suggest efficacy of conventional public health measures. Read how great news on vaccines supports markets and limits downside risk.
Read more
healthcare sector going forward
February 1, 2021
Eugene Yashin highlights the strong performance of smaller stocks, value stocks and indicates sector opportunities for investors with a long-term perspective.
Read more
January 1, 2021
Eugene Yashin on how the $900bn COVID relief package combined with the Fed commitment to long-run monetary policy should support the markets going forward.
Read more
December 1, 2020
Stocks hit record highs on growing evidence of effective vaccines emergence. Eugene Yashin reviews global and US economics, stock market and portfolio changes.
Read more
November 1, 2020
On the eve of elections, Eugene reminds investors of a key lesson from 2016: avoid making big bets that rely on one particular outcome to perform well.
Read more
October 1, 2020
Stock markets have cooled off recently and the economy provides stability. The volatility is creating pockets of opportunity for long-term investors.
Read more
September 1, 2020
COVID infections spread however on the third quarter economic front, surveys result as positive. New weekly jobless filings and ongoing claims remain high.
Read more
July 31, 2020
US economy improves with strength in retail spending, industrial output, and housing. COVID infections cause unemployment, high jobless filings remain.
Read more
June 29, 2020
In Q2 2020 US equities staged a remarkable recovery from the Q1 decline rewarding investors who were able to stay invested. More in Signet's market overview.
Read more
June 1, 2020
In Q2 of 2020, US equities staged a remarkable recovery coming from the Q1 decline by rewarding those investors who were able to stay invested.
Read more
May 1, 2020
April was the best month for stock markets since 1987. What are the implications for investors? Read our latest update on the economy and financial markets. 
Read more
April 1, 2020
While the markets are dominated by fear, we do not succumb to hysteria. We act with cool heads when we rebalance and compassionate hearts when we speak to you.
Read more
March 1, 2020
Coronavirus places a brake on economic growth, however studied predictions comprise of resilient recovery in global growth rates around midyear time frame.
Read more
February 1, 2020
Coronavirus concerns hit markets, Steve Tuttle reviews why fears may be overblown, and could lead to opportunity to enhance returns for long-term investors.
Read more
February 1, 2020
US economy holds a healthy stance with decline in jobless claims and increases in housing start. Stock market performances exceed expectations.
Read more
January 1, 2020
US economy finishes strong as 2019 ends with record high stock markets. Political uncertainties diminish worldwide leading confident global growth in 2020.
Read more
December 1, 2019
Read several reasons why the US economy is expected to accelerate in 2020 as well as corporate earnings. Global GDP growth continues at a sub-par slow pace.
Read more
November 1, 2019
Our Chief Investment Officer, Eugene Yashin, examines major themes in global markets including regime change that is encouraging for value investors.
Read more
October 1, 2019
Post summer spending causes plateau in sales. Read up on key notes from the Federal Reserve’s policy meeting and why global expansion is stuck.
Read more
September 1, 2019
Rise in trade war with further tariffs from China followed by further counter measures and additional tariffs from President Trump weakens equity markets.
Read more
August 1, 2019
Stock investors benefit from low yield environment. Eugene offers thoughts on the economy, earnings, and interest rates, and how it all affects investors.
Read more
July 1, 2019
Is stock market really complacent? Eugene Yashin reviews the economy and markets, including a range of long-term opportunities for investors.
Read more
June 1, 2019
Stocks faced a tough May. Despite ongoing worries about the pace of global growth and the US/China trade dispute, fundamentals are still supportive.
Read more
May 14, 2019
After 2019’s strong start, stock markets stepped back as trade tensions between the US and China escalated. Investors are encouraged to expect volatility.
Read more
May 1, 2019
Markets indicate major improvement from Q4 of 2018 along with stronger-than-expected activity readings raising the global GDP growth estimates.
Read more
April 1, 2019
The nation’s economic locomotive slowed down in the first quarter. Growth in employment, industrial production and business fixed investment hardly advance.
Read more
March 1, 2019
Chief Investment Officer, Eugene Yashin’s latest market review features the rebound in fundamentally sound stocks and areas of opportunity for investors.
Read more
February 1, 2019
Despite historical government shutdown, our economy is forecasted to show resilience with consumer and industrial markets upholding strength for GDP upturn.
Read more
January 1, 2019
What lies ahead for the economy, markets, and investment strategies? Eugene highlights factors that drove markets in 2018 and may impact investors’ tactics.
Read more
December 1, 2018
Markets receive a boost from Fed comments and make progress on trade talks with China. Eugene evaluates key themes and data that could influence markets.
Read more
November 1, 2018
Updates concerning investment backdrop, GDP growth, higher inflation, advancing interest rates and yields on 10-year Treasury notes hitting seven-year high.
Read more
October 1, 2018
Economic growth looks healthy and we have a positive view towards financial markets finding investment opportunities in solid businesses that are mispriced.
Read more
September 1, 2018
The economy and earnings still look great. Eugene Yashin provides reasons on how this bull market still has legs with its strong advances in Q2 of 2018.
Read more
August 1, 2018
Signet financial experts see light in US and global economy with factors such as GDP growth, healthy sales, industrial production upturn and factory use.
Read more
July 1, 2018
Halfway through the year, markets digest trade tensions, market volatility, Fed policy, politics, and strong earnings. Read Signet’s forecasts for 2018.
Read more
June 1, 2018
Volatility sets concern on geopolitical tensions, trade conflicts, inflation, and politics as domestic, global environment and corporate health look supportive.
Read more
May 1, 2018
Forecasting economic and earnings growth to remain solid. Corporate earnings results are at their best levels in years while stock prices struggle to rise.
Read more
April 1, 2018
Volatility is back and judging by our macro forecast, it may be with us for some time. Volatility is not bad, but it can provoke behavioral mistakes.
Read more
pull back picture
March 2, 2018
Markets are not reacting well to President Trump’s plans to announce tariffs on steel and aluminum imports. What is to come for the investment environment?
Read more
March 1, 2018
Volatility returns in February, as we saw a stock market correction and impressive rebound within weeks. Read what to expect if volatility levels continue.
Read more
February 6, 2018
Steve Tuttle responds to the recent market volatility and answers some timely questions: Why are markets selling-off? Is this end of the bull market?
Read more
February 1, 2018
A strong labor market coupled with accelerating wages and personal income tax reform lead us to believe consumption will remain strong in the near future.
Read more
January 1, 2018
With global growth set to continue and employment outlook showing improvements, we are optimistic about the new year. Read Signet’s projections for 2018.
Read more
December 1, 2017
2017 has been a good year for the U.S. economy, and we believe the bull market can continue in 2018. Read Signet’s expectations for financial standings.
Read more
November 2, 2017
Despite hurricanes impacting many communities, the best year showing retail spending surges, welcoming recovery. The global economy tapers down, for now.
Read more
October 4, 2017
The Impact of two powerful hurricanes along with a pause in retail sales and declining industrial production contribute to slowing down economic growth.
Read more
September 13, 2017
Signet's quantitative assessment shows stocks that blend growth and value characteristics are well positioned for the late phase of economic expansion.
Read more
September 12, 2017
Read Signet's overview of performance trends and risks among sectors as well as opportunities for investors for healthy earnings growth on a global scale.
Read more
August 15, 2017
We believe the global economy is strong in foreign markets and is helping foreign currencies against the US dollar. The US economy shows loss in momentum.
Read more
gains in exports
July 3, 2017
The US economy strengthens. Unemployment is low, inflation is tame, long-term interest rates are near their low-point, and US equities show positive results.
Read more
April 3, 2017
The first quarter of 2017 was dominated by political headlines and firming economic data. Stocks have generally rallied on better global growth.
Read more
March 1, 2017
The US economy is off to a good start in 2017. Manufacturing, non-manufacturing, employment, and consumer spending data are holding up well.
Read more
February 1, 2017
The global economy continues along a low-growth path, and there are a number of bright spots. US companies report the strongest profit growth in 2 years.
Read more