Investors should be cautious for the remainder of 2022 when it comes to U.S. equities and credit as markets have not absorbed the Federal Reserve’s determination to keep interest rates as high as 4%, advises Greg Fleming, the veteran banker who runs Rockefeller Capital Management.
The company cites 50 years of historical evidence to support this view. Since the 1970s, the Fed has always waited for overall annual inflation rates to fall below the federal funds rate before moving to an easing of monetary policy. Inflation is now 8.5% and the Fed’s target range is 2.25-2.50%.
“The fed funds rate needs to cross before the Fed starts to pull back. They will want to make sure they have inflation under control,” Fleming said. “It could stay at 3.5 to 4% for six to 12 months.”
“I am positive in the medium term on the United States but. . . for the last four months of the year, markets will remain volatile,” he said. “Markets will try to read every talk, every data point.”
The group’s chief investment officer, Jimmy Chang, recommended long-short hedge funds, precious metals and long-dated Treasuries to his clients in a recent note, writing: “I doubt a new bull market has started and would remain patient, selective, and defensive.
Fleming, a former senior executive at Merrill Lynch and Morgan Stanley, has led Rockefeller since Viking Global Investors bought the Rockefeller family office and relaunched it as a larger business in March 2018.
Since then, Fleming has overseen the transformation and growth of the 140-year-old company from an $18.3 billion business to a $90 billion Rockefeller-focused asset and wealth manager. modern – rich and ultra-rich customers.
Asset accumulation has sometimes been slower than expected, Fleming said. “We are still a work in progress here. There is a level of expectation when customers walk through the door and you need to be sure you have the capacity to deliver.
The company is gradually expanding its physical presence. It has grown from three initial offices to 40 and plans to add more, with new outposts in wealthy growing cities such as Nashville, Charlotte and Orlando. It is also expanding the range of services it offers to cover everything from bill paying and financial education for its clients’ adult children to investment banking and strategic advice for businesses that clients own.
Despite attacks on investing based on environmental, social and governance factors from conservative politicians in states like Texas, Rockefeller’s asset management arm is sticking to its historic focus on funds. ESG. “We have clients like my Gen Z kids who care about investing a certain way. We believe this is a secular change; it’s a growing business,” says Fleming.
Inflation and bumpy markets have reinforced the company’s already strong emphasis on alternatives. Fleming says private equity and credit valuations are starting to fall as investment committees factor in first-half price declines in public markets and the Fed’s plans to remain hawkish.
“There’s still a long way to go here,” Fleming said of the Fed’s inflation plan. “So we are cautious – cautious on equity markets, cautious on debt markets. . . for the rest of 2022, then we’ll see.