The U.S. should absolutely be the core of your portfolio, says Emma Wall

What are your expectations for CPI and what do you think that means for the markets? We’re pretty much in line with consensus. So we do think there’ll be a slight increase this month, mostly due to energy prices coming in hotter than they have been previously. But if you strip out energy and you just focus on core, we do expect that downward trend to continue. The difficulty is that most US consumers can’t just strip out core inflation, right? It’s what they’re experiencing day in, day out and therefore that inflation figure is something they’ll be very focused on and of course the Fed will be very focused on. Now I’m not quite as pessimistic as some of your earlier guests. I do think we do see some rate cuts in the second-half of this year, but it’s very telling that you know in December we were talking about seven rate cuts from the Fed in 2024. Now we’re even discussing the possibility of none. So it is a very different economic and fiscal picture than it was just a few months ago. Yeah, what a quite a turn around. I think there was even some discussion of possibly a hike. I think that rattled the markets just a bit. So when we talk about this CPI report, one of the big things we have to focus on is shelter inflation. That seems to be one of the stickier parts about that. What are your expectations when it comes to shelter inflation? Yeah, it’s one of the, if you have a look in the data, there’s so many different elements which are which are driving this inflation figure. Now some stuff is coming down, for example, second hand autos that’s coming down. Airfares were higher last month. We’re expecting those to come down this month. But shelter is sticky and we do expect that trend to continue. If you think about some of the drivers of inflation, we’re talking about the health of the US consumer, the health of US households, which luckily is reasonably robust. And don’t forget we had those jobs figures that came in hotter than expected last week, which is an input into inflation. More people getting jobs, you’ve got wage inflation, you’ve got more consumers with more consumer spending. It means that they can swallow those higher prices, greater demand. So inflation definitely is sticky. I don’t expect that the Fed will, will veer from the course. However, it’s giving a lot of forward guidance. It knows inflation is sticky. That’s why it’s saying second-half of the year 3 late rate cuts. And those rate cuts we expect to be small rate cuts as well. That’s the other thing that I think is key to this Fed policy. OK. So you do believe we are going to see some rate cuts this year. I want to go to the equity market. When you’re advising clients, you say that the US is your number one region, but are you playing the entire market? Something like would you advise them to do an index fund or are there certain sectors that you see as more favourable with still a somewhat uncertain rate cut path forward? Yeah. So investor confidence in the US is really high when we surveyed our clients last week, and in fact, is growing in emerging markets, whether or not that’s still the case after we’ve had that news about China’s rating from Fitch being downgraded earlier today. the US is a #1 region for us, but it’s not where we’re seeing the greatest value. We’re seeing much better value in terms of where markets are trading to kind of long term averages in areas like the UK. In areas like China, which has just been so beaten up so much, the bad news is priced in. So the US should absolutely be the core of your investment portfolio, but potentially you should be taking some gains because over the last 18 months as we know although it’s been volatile that has been a fantastic performer. So taking some gains and looking at areas which are undervalued. So we think the UK emerging markets and we still think there’s a lot of value to be had in fixed income. You know rates of are are high but the trajectory is downwards. So if you’re a more cautious investor bringing in some fixed income into those portfolios, you know, I mean we have to let you go. But very quick you said all the bad news in China’s already priced in. So not surprised at all by today’s downgrade from Fitch. No, I I think China has been so beaten up by the last couple of years. You know going back to the pandemic and the sort of you know the way that the the government handled the opening up of the economy, you know if you just look at some quite high quality companies. But yes, there is the, the question of how the government interplays with the equity market there. We do think so much that bad news is priced in. So on a very long term view, we’re not saying this is a one or two year play. We do think there is some value to be had in the Chinese stock market.