By Senior Advisor, Director of Institutional Investment Management Kirk Ludwig, AIF®.
Interest rates don’t always make headlines, but when they do, they tend to shake everything else. That’s because rates sit at the heart of the economy: they influence borrowing costs, savings yields, and business investment. When rates rise, borrowing slows down and saving money becomes more attractive. When rates fall, money moves more freely, boosting spending and growth. The Federal Reserve adjusts short-term interest rates to keep this balance in check - more like walking a tightrope than pulling a lever. One wrong step, and they risk leaning too far in either direction.
Lately, that balancing act has gotten tougher. One day, markets are reacting to sticky inflation. The next, it’s fears of slowing growth (i.e., recession). Economic data keeps shifting, headlines flip week to week, and forecasts feel outdated the moment they’re made. With so much in flux, the Fed held interest rates steady at its last meeting, opting to wait for more clarity. Tariffs could end up raising prices and slowing growth at the same time - a combination economists refer to as stagflation. It’s not a word we throw around lightly, but it explains why the Fed isn’t rushing into a decision.[1] Sometimes, staying put is the most thoughtful move.
It’s a challenging environment for policymakers, but it’s just as noisy for investors. And in times like these, clarity isn’t the most realistic goal. Preparation is.
That’s why, at SJS, we don’t try to guess the next move. We focus on building portfolios that can withstand evolving markets. Our fixed income strategy (bonds) is designed for a wide range of outcomes:
Short-duration bonds to help in an environment where prices stay elevated and yields potentially rise.
Inflation-protected bonds to assist in times of unexpected or prolonged inflation.
Longer maturity holdings that benefit if growth slows and yields fall.
A diversified mix of credit bonds, including investment-grade corporate bonds, as well as selectively-chosen high yield bonds and private credit to capture higher yields.
We don’t build portfolios to match the news. We build them to withstand it.
We’ve seen many economic cycles. Each one brings its own uncertainty, but this one feels especially dynamic. With so many moving parts, the outcome may look very different from what anyone expects. That’s why we don’t build portfolios around predictions; rather we build them to adapt. Time and again – we believe thoughtful diversification, discipline, and a clear process prove more effective than chasing headlines.
So yes, the Fed may be walking a tightrope. And yes, markets may stay moody.
But your bond portfolio? That should stay steady.
Important Disclosure Information & Sources:
[1] “Federal Open Market Committee”. Board of Governors of the Federal Reserve System, federalreserve.gov.
There is no guarantee investment strategies will be successful. Past performance is no guarantee of future results. Diversification neither assures a profit nor guarantees against a loss in a declining market.
MarketPlus® Investing models consist of institutional quality registered investment companies. Investment values will fluctuate, and shares, when redeemed, may be worth more or less than original cost.
Statements contained in this report that are not statements of historical fact are intended to be and are forward looking statements. Forward looking statements include expressed expectations of future events and the assumptions on which the expressed expectations are based. All forward looking statements are inherently uncertain as they are based on various expectations and assumptions concerning future events and they are subject to numerous known and unknown risks and uncertainties which could cause actual events or results to differ materially from those projected.