Market movements during the second quarter have been unpredictable and narrowly focused. The Fed’s fight against inflation still weighs on markets. The Fed has paused. For now. With long term inflation still expected to rise, this pause is just that. A pivot in central bank policy may only happen if the order of magnitude changes significantly, i.e. the size of employment numbers and wage growth, or if there is a market event. This is true for both the Fed and the RBA.
Beyond an emphasis on liquidity, we continue to think investors should focus on balance sheets and cash flow and avoid highly volatile and speculative assets.
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