The market oracle (aka, Federal Reserve) finally spoke yesterday and investors were reassured by what they thought they heard. The U.S. central bank announced that it would sit tight on interest rates but seemed to hint of further easing to come.

It brings to mind the ancient Romans. They were a superstitious and pagan people, seeing portents in a wide variety of objects, both inanimate and living. Notably, they believed the future could be told from animal remains. The Romans were easily frightened or encouraged by the slightest omens. The same goes for modern-day Wall Street.

The Federal Reserve’s Federal Open Market Committee (FOMC) voted 9-1 to keep the benchmark rate in a target range of 2.25% to 2.5%, where it has been since December’s quarter-point increase. The central bank said it expects a rate cut ahead, but not until 2020.

In describing its stance on policy, the FOMC dropped a single word: “patient.” This cryptic portent was construed as positive by Wall Street, because it supposedly means the Fed is no longer staying neutral and has adopted a bias toward further cuts. An additional 0.25% interest rate cut as soon as this year depends on economic and inflation news. So far, inflation has been tame, although tariffs and wage growth are adding price pressures that investors are probably underestimating right now.

The FOMC’s decision puts Fed Chairman Jerome Powell and President Donald Trump on a collision course. As he gears up for re-election, Trump has been pressuring the Fed to cut rates to stimulate the economy.

At his post-statement press conference yesterday afternoon, Powell was asked about reports that Trump wanted to remove him because the Fed isn’t sufficiently dovish. “I think the law is clear that I have a four-year term and I fully intend to serve it,” he pointedly remarked.

Praying for a rate cut…

After the FOMC policy statement and Powell’s press conference yesterday, Wall Street read the entrails and came to the conclusion that another rate cut is likely next month — as the stock and bond markets have been fervently hoping.

The three major U.S. stock indices rose modestly yesterday on the decision. As of this writing on Thursday morning, world stock markets were gaining in the wake of the Fed’s apparent reassurance.

Low interest rates have been fueling this record-setting bull market, allowing corporations and consumers to more easily borrow money. But to quote the infamous expression coined by former Fed Chief Alan Greenspan, are investors showing “irrational exuberance” over the Fed’s decision yesterday?

Actually, in my mind, the Fed’s prudence deserves to be applauded. The Fed could have taken a stronger stance toward cutting rates, but the Fed is rightfully playing it safe. We’ve already had a decade of easy money; the party can’t go on forever. The Fed also wanted to reassert its independence from Trump and the big banks that have been clamoring for a rate cut. Sure, that may annoy the president and some investors over the short term, but over the long term this patience will pay off.

One trend is clear: further tightening from the Fed is off the table, especially since the European Central Bank recently indicated that it’s leaning toward stimulus. Growth has sputtered in the European Union, amid worries over protectionism and geopolitical tensions. A rate cut for the region would set an example for the U.S. central bank.

The “Goldilocks” economic climate in the U.S. (not too hot, not too cold) presents several market-beating growth opportunities for investors this year, especially if second-quarter corporate earnings surprise on the upside. Earnings growth was expected to sharply decline in the first quarter, but the final results were better than feared. Earnings could again show unexpected resilience in this quarter. Stay cautious, though, and reduce your exposure to overpriced momentum stocks.

According to the Select Sector SPDR exchange-traded funds that divide the S&P 500 into 11 sectors, the top performing sectors over the past year have been utilities and real estate, two industries that benefit from low interest rates. These sectors also are appropriate for the late stage of an economic cycle and they provide a buffer from the continuing trade war.

Portfolio allocations that make sense now: 50% stocks, 25% hedges (such as gold and other precious metals), 15% cash, and 10% bonds. About 5% to 10% of your hedges sleeve should contain at least 5% to 10% of gold as protection against any downturns and fluctuations.

It’s not just the paranoia of Fed-bashing, hard money zealots: Global turmoil really does make gold a smart investment now. As the price of the yellow metal rises this year due to a tense global backdrop, the “gold bugs” are starting to feel vindicated.

Your portfolio still needs the safety of bonds, which have an inverse relationship to interest rates. When interest rates rise, bond prices fall, and vice-versa. Bonds confer ballast for a portfolio during rough stock market seas.

Read This Story: The Name Of The Game Is Bond…Treasury Bond

While bonds are generally safer than stocks, it’s still vital to understand the mechanics of an investment in bonds.

Many investors mistakenly think bonds are like a certificate of deposit. But this is absolutely not true. They can collapse in value, just like certain vulnerable stocks right now. Though bonds are less risky than stocks, that doesn’t mean they aren’t risky at all. Investors need to account for several different kinds of risk when they evaluate bonds, the most important being default risk and interest rate risk.

In tomorrow’s Mind Over Markets, I’ll delve into the most common misconceptions about bonds. In the meantime, the market oracle has spoken and investors should be of good cheer. Unlike many government entities these days, the Federal Reserve seems to know what it’s doing. The Fed is making decisions based on empirical evidence, not economic superstition.

Questions about monetary policy and how it affects your portfolio? Drop me a line: mailbag@investingdaily.com

John Persinos is the managing editor of Investing Daily.