Powell has spoken – should you really care?

Is there life beyond the US Federal Reserve? I often ask myself this question amid the torrent of market commentary that the investment industry produces day after day after day.

“The Fed is poised to do this...”, “The Fed looks set to do that...”, “The Fed had buttermilk pancakes for breakfast...” – the one-dimensional narrative seems to have no end. And it is far from helpful, because it gives investors the impression that nothing else matters.

It reminds me of the inane transfer gossip that aims to keep football fans in a permanent state of hysteria. “Neymar vows to stay at PSG...”, “Neymar dreams of Barcelona return...”, “Neymar tipped for mega-money move to Saudi Arabia...” – most of it is ephemeral tittle-tattle, and in time you should realize it means precious little.

In reality, just as professional sport is about more than rumor and hearsay, investing is about more than obsessing over the Fed’s policies. Success does not rely entirely on an ability to interpret macro events, even if most commentators repeatedly talk like – and sometimes even act like – global macro investors.

I must admit at this point that I am actually a big fan of global macro investing, provided it is done well. I happen to be absolutely useless at it, but there are many impressive exponents – some of whom have recently enjoyed successful comebacks after 15 years of easy money.

Global macro investors can go long and short more opportunistically during times of rapidly rising interest rates and other challenges. Their strategies can also sometimes serve as meaningful diversifiers.

For most of us, however, that is where the story ends. And this is why poring over the perceived nuances of the latest Fed pronouncements is of such limited value to the vast majority of investors.

We would instead be better advised to maintain a laser-like focus on the long-term health and performance of our portfolios. With the guidance of our asset and wealth managers, we should concentrate on figuring out the difference between a business’s intrinsic value and market valuation.

This demands deep research. It requires an understanding of the nature and pace of technological evolution and the potential impact on cash flows and valuations over the years to come. 

Correctly timing the next couple of hikes, pauses or reductions in interest rates will have scant bearing on such considerations. Our investment goals, our desired outcomes for both capital appreciation and income, our risk tolerances and how we position ourselves for the next business cycle are likely to be of far greater consequence.

Of course, you might be one of the select few who genuinely favor and prosper from global macro investing. I wish you well if this is the case. For the rest of us, though, it is time to recognize the relentless frenzy surrounding the Fed’s machinations for what it usually is: noise. 

YTD Performance: Energy (XLE) versus S&P 500 versus Technology (XLK)

Although past performance is not a guide to future performance, technological evolution has clearly proved a rewarding theme for tech-savvy investors over the past 10 years. To some extent, this has also been reflected in the long-term performance of the tech-heavy S&P 500. By comparison, the energy sector has been highly volatile.