There is a “vibration” between higher rates and a stable economy, says strategist

Inflation is a key focus for market observers after the House of Representatives passed the Build Back Better Act, a comprehensive spending measure now on its way to the Senate.

“The economy will continue to move forward, we are not going to see much of a slowdown there. Inflation will continue to rise,” Barry James, portfolio manager at the James Investment Research Portfolio, told Yahoo Finance Live.

“In a way, we have a shaky swing between perhaps higher interest rates and a stable economy and what is playing out throughout the investment world,” the strategist said.

In the current inflation environment, James recommends favoring pricing firms with resilience to operating margins.

Federal Reserve Chairman Jerome Powell testifies before House Financial Services Committee during hearing on Capitol Hill, Washington, USA, September 30, 2021. Sarah Silbiger / Pool via REUTERS

Federal Reserve Chairman Jerome Powell testifies before House Financial Services Committee during hearing on Capitol Hill, Washington, USA, September 30, 2021. Sarah Silbiger / Pool via REUTERS

“It seems that inflation has been with us for a while, although we are seeing an energy downturn that could ease some of these concerns,” James said.

As the likelihood of an interest rate hike from the Federal Reserve increases next year, James suggests leaning toward cyclical stocks.

“I think it’s the next wave when we first get things under control a little bit in terms of COVID and the like; smaller cap, more value-oriented names and more cyclical names,” James said.

“It’s important that you do not ride on things that have been on a parabola race and just keep hanging on to them,” he added. It is wise to trim names that have been broken and take some profit from the table.

“Nvidia (NVDA) for example, we own it in the Golden Rainbow Fund, but we’re trimming something back,” James said.

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