I own a house in Rhode Island, aka “the Ocean State,” and during summer visits, I enjoy sailing with my pals. We have an expression: it’s the set of your sails, not the gales, that provide direction.

The same applies to your investments. Don’t allow your portfolio to get buffeted by temporary external factors. Stay on course by calibrating the allocations of your portfolio to shifting circumstances.

Below, I pinpoint assets that should benefit from the confluence of economic growth and higher inflation. They also should weather the Federal Reserve’s accelerated tapering and eventual policy rate hikes.

Investors initially took faster Fed tapering in stride, largely because it was long expected and it denotes economic growth, but they’re getting nervous about the central bank’s plans to hike rates sooner than planned.

On Thursday, the major U.S. stock market indices declined as follows: the Dow Jones Industrial Average -29.79 (-0.08%); the S&P 500 -41.18 (-0.87%); the technology-heavy NASDAQ -385.15 (-2.47%); and the small-cap Russell 2000 -42.75 (-1.95%). Stock futures were down in pre-market trading Friday, as tech shares continued their slide.

Tech stocks have taken it on the chin the last couple of days, as investors anticipate higher interest rates in the wake of the Fed’s more hawkish tilt.

The value of any asset is its future cash flows discounted at the prevailing interest rate. Growth stocks have higher projected future earnings; when interest rates are rising, those future earnings are worth less.

A tailwind, though, is the overall corporate earnings picture. According to research firm FactSet, the projected earnings per share (EPS) growth rate for the S&P 500 in Q4 2021 is 20.9%. For calendar year 2021, the projected EPS growth rate is 45%.

Read This Story: Worried The Economy Is Tanking? Don’t Be

FactSet also reports that the consensus of industry analysts is for the S&P 500 to reach a closing price of 5,225.00 in 12 months. That target implies an increase of roughly 12% from current levels (as of this writing, before the opening bell Friday).

This bottom-up target price for the index is calculated by aggregating the median target price estimates (based on the company-level target prices submitted by industry analysts) for all the companies in the S&P 500. See the following chart:

Adjusting your sails…

The Fed announced this week that it would accelerate its tapering of asset purchases, paving the way for at least three interest rate hikes next year.

Don’t get spooked. Historically, stocks have held up well during periods of Fed tapering and the start of policy rate hikes.

That said, I expect continuing pressure on high-valuation large-cap growth stocks, especially in the tech sector. How should you adjust?

Reduce your exposure to pricey Silicon Valley “story stocks.” Emphasize defensive and value plays. Smart sectors now include health care and consumer staples.

I also like aerospace/defense. On Wednesday, the Senate passed a House-approved defense spending package that heads to President Biden’s desk for his signature. The legislation provides $740 billion for the Pentagon, which is $25 billion more than Biden initially requested.

Military contractors never have to beg for money; their stocks provide recession-resistant growth and a hedge against inflation. These companies enjoy a powerful lobbying presence in Congress, regardless of which political party is in control. What’s more, the makers of combat aircraft and weapons systems are immune to pandemic headwinds.

It’s also important that you increase your exposure to classic inflation hedges such as gold and other commodities. As the global economic recovery gains speed and infrastructure spending explodes, miners of essential raw materials (e.g., copper, iron ore and lithium) will richly benefit from the commodities “super-cycle.”

A super-cycle is a decades-long, above-trend, upward trajectory in a wide range of base material prices, stemming from a structural change in demand. It’s how fortunes are made. For details about our favorite commodities play, click here now.

John Persinos is the editorial director of Investing Daily. You can reach him at: mailbag@investingdaily.com. To subscribe to John’s video channel, follow this link.