Prepare for landing

Question: How should investors be positioned amid fears of a rocky landing?

Phil Orlando: The Federal Reserve has a dual mandate, maintaining full employment and moderate inflation. And right now, the rate of unemployment is just off of a half-century low, but inflation is sitting at a 41-year high. So, it's pretty clear what the Federal Reserve needs to attack in terms of this so-called Phillips Curve trade-off. And Jay Powell at Jackson Hole was very clear. He's going to do what he has to do as long as he has to do it in order to get inflation back to target, which is 2% for the core PCE. But in the process, we believe that the Federal Reserve is prepared to expect and accept a significant increase in the rate of unemployment, maybe double up to 7% over the course of the next couple of years. So, the question is does that push the U.S. economy into a recession or certainly a rocky landing looking out over the next couple of years? As investors, how do we protect ourselves? The answer is that if interest rates are going materially higher, you want to be overweight in value stocks, stocks that are cheap, lower betas, high dividend yields, and underweight the high growth stocks, technology, consumer discretionary, that are trading at these humongous price earnings multiples. As interest rates go up, those growth companies will be hit disproportionately. The value stocks, in our view, will hold up much better.