Gut check time. The next meeting of the Federal Reserve’s policy-making arm, the Federal Open Market Committee (FOMC), is looming on the calendar, after which the FOMC will announce its latest interest rate decision.

The meeting, scheduled for January 31 to February 1, will be followed by the customary press conference by Fed Chair Jerome Powell. (Ugh.)

Frankly, I’d rather endure a visit to the dentist than sit through another Powell media performance. Mr. Powell has shown a propensity for needlessly talking down the markets with a hawkish tone that exceeds the aggressiveness of actual FOMC decisions. It brings to mind the refrain of a 1976 pop song: You talk too much.

Below, I’ll show you how to position your portfolio right now, in the context of inflation and interest rate trends. The good news is, these trends point to bullish catalysts later this year.

The big news…

This week, the dominant news will be the U.S. consumer price index (CPI) inflation report for December, which is scheduled for release Thursday. The financial media already are abuzz, and the numbers will move markets.

The consensus expectation calls for headline inflation to fall to 6.7% year-over-year, down from November’s 7.1%. Expectations are that the core rate (excluding the volatile food and energy components) will be 5.6% annually, down from 6% last month.

Overall, leading indicators continue to show signs of inflation receding. Analysts see core inflation moving towards 3.0% levels by year-end 2023, which likely supports a pause in the Fed’s tightening cycle because that level gets closer to the central bank’s inflation target of 2%.

The overriding question on Wall Street is whether the Fed sticks to another 0.50% (50 basis points) hike in interest rates when it next meets, or if it eases down to a quarter point hike.

Regardless, investors have started 2023 on a positive note. U.S. stocks rebounded last week, although they took a breather and closed mixed Monday.

On Tuesday, the main U.S. stock market indices closed higher as follows:

• DJIA: +0.56%
• S&P 500: +0.70%
• NASDAQ: +1.01%
• Russell 2000: +1.49%

At a symposium Tuesday in Sweden, Powell gave a speech that focused on the need for central bank independence. The surprisingly bland nature of his remarks reassured investors and was a major factor behind the jump in equities.

“The case for monetary policy independence lies in the benefits of insulating monetary policy decisions from short-term political considerations,” Powell said. Neutral remarks, given in a neutral country.

It’s also noteworthy that the battered NASDAQ, which is dominated by interest rate sensitive tech shares, has shown the most resilience so far this month among the major U.S. equity benchmarks.

The FOMC on deck…

Markets are pricing in a Fed rate boost of 0.25% at its next meeting at the end of this month, which would bring the fed funds rate to 4.75%. Overall, expectations are for the fed funds rate to peak at around 5.0%, before the Fed pauses its rate tightening cycle.

It’s impossible to time the Fed’s pause, but when it happens, it’s likely to function like rocket fuel for equities. It’s my feeling that the pause signal will emerge in the latter half of 2023.

You should position your portfolio now for “growthier” risk-on assets, such as cyclical stocks. It’s my contention that beaten-down tech shares are poised to pop, because they’re oversold and the rate backdrop is about to improve.

I also think other cyclical sectors, such as consumer discretionary and automobile manufacturing, will rise as economic growth stabilizes.

Energy outperformed all sectors in 2022, but this performance is unlikely to continue in 2023 as crude oil prices decline (see chart).

The fall of crude prices is a powerful disinflationary trend that takes the wind out of energy shares, but lifts the broader economy. Another bullish catalyst would be a resolution of the Russia-Ukraine war, which has been a major source of global supply chain disruption and hence inflation.

Russia faces a diminishing chance of winning the war and sanctions are taking a lasting bite out of the Russian kleptocracy, but I expect the war to grind on indefinitely. Russian President Vladimir Putin isn’t likely to blink, but then again, neither is Ukraine nor NATO.

Ready for blast off…

A growth sector that’s been unfairly pummeled is marijuana. That’s right…marijuana.

Despite the increasing legalization of marijuana in 2022 and the prospect that restrictions will get further lifted in 2023 and beyond, many intrinsically sound cannabis investments have gotten caught in the downdraft of the bear market.

Many of these pot companies recently posted stellar operating results, but bearish sentiment has been relentless in driving down their share prices.

As a new year (and a new financial outlook) begins, cannabis stocks are on the launching pad, ready to blast off. That’s why I’ve created a new premium trading service called Marijuana Profit Alert.

My publication covers news and trends in the marijuana and psychedelics industry. I speak on a regular basis with industry insiders, whether they’re on Capitol Hill or in corporate suites or on Wall Street.

I crunch a lot of data, put it through my proprietary screening system, and provide specific, actionable advice on the best investments in the marijuana and psychedelics sectors. In my portfolio of holdings, I strive to strike the right balance between risk and reward.

To learn more about Marijuana Profit Alert and my specific money-making trades, click this URL

John Persinos is the editorial director of Investing Daily.

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