Understanding the big picture can be incredibly valuable when developing a current and future investment strategy. That’s where macroeconomics comes into play. In simple terms, macroeconomics looks at the primary features of the economy—from interest rates to inflation to employment trends. Instead of focusing on individual companies or stocks, it explores how broad economic forces impact our daily lives, including how we invest money for future returns.
The recent U.S. elections may impact your macroeconomic outlook for the future.
For instance, borrowing costs are higher when interest rates go up, impacting housing markets, credit, the bond market, and even the stock market’s future performance. Or consider inflation: when the cost of goods rises, it can chip away at consumer and business purchasing power, influencing which types of investments might hold their value the best during periods of higher inflation.
As Austin investment advisors, we help you pay attention to these broader economic trends so you can make informed choices about where to invest your money and when to make adjustments.
In this blog, we’ll break down the key macroeconomic factors worth watching and how they might guide your investment strategy—so you can make more informed decisions for your financial well-being.
1. The Federal Reserve Policy and Your Investment Strategy
The Federal Reserve’s monetary policy decisions, especially those that impact interest rates, may significantly impact your stock and bond investment results.
When rates are low, borrowing costs are cheaper, and credit is more accessible, which tends to benefit smaller, faster-growing companies the most. This creates an opportunity to consider leaning toward companies with higher growth potential, even if they have higher risk profiles.
Think of smaller, more innovative technology startups or emerging players in their respective sectors. These companies can flourish during periods of low interest rates because capital that funds higher growth rates is cheaper.
In contrast, we’ve seen a higher interest rate environment more recently, making borrowing more costly. This generally slows down higher-growth sectors of the economy. However, it can make new bonds, structured notes, and fixed-income instruments more attractive because they have higher yields.
Higher interest rates typically favor established, larger companies (often described as blue-chip stocks) with strong cash flows in more mature markets with reduced dependence on borrowing to fund growth. This shift can cause individual investors to adjust their allocations to stocks with larger capitalizations in more mature, stable industries (utilities, consumer staples, healthcare).
2. The Impact of Higher Interest Rates on Sectors
Interest rates don’t just influence the broader economy—they have a range of impacts across different industries, geographies, and asset classes. Our team of Austin financial advisors uses these economic insights to structure client portfolios in line with the current and anticipated interest rate climate.
Low Interest Rates: Lower borrowing costs mean smaller, faster-growing companies, such as tech stocks, can more easily secure funding for growth. This market segment, often considered more “volatile,” tends to be more sensitive to economic conditions and performs better when rates are low and credit is more available.
At Beck Capital Management, we offer in-house investment management of your assets rather than outsourcing to third-party money managers who charge additional layers of fees. Our goal is to identify investment opportunities in these lower-interest-rate environments.
High Interest Rates: As rates rise, current fixed-income investments like bonds decline in value but produce higher yields, attracting investors looking for more predictable returns. This environment can appeal to investors closer to retirement or with higher risk tolerances.
Additionally, larger, well-established companies with a track record of stability often become preferred. With reliable cash flows, they offer investment alternatives and are seen as less volatile choices during periods of economic volatility.
Consider working with an Austin investment advisor who uses active portfolio management to develop insight into sector trends and help you determine when to pivot towards more defensive holdings, like blue-chip stocks or bonds, based on the prevailing interest rate environment.
3. Employment Statistics and Economic Health
Higher employment rates offer valuable information that generally signals economic growth that will support investments.
Conversely, consumer spending typically declines when unemployment rises, and consumer-oriented companies often experience shrinking revenues. This can lead to heightened volatility in the stock market, which may prompt individual investors to reassess their riskier asset allocations.
During economic downturns, it may be prudent to shift your investment strategy toward more conservative investments, such as high-grade fixed income or stocks in more stable industries.
Our Austin-based investment team recognizes that local economic factors can interact with national employment trends. By considering regional and national employment data, we can help you fine-tune portfolio recommendations based on a broader picture of the economy.
Watch our podcast episode, “Uncovering the Benefits of Private Market Investing.”
4. Cyclical vs. Defensive Assets: Choosing Wisely Based on Economic Cycles
Personal investment strategies may benefit from a balanced approach between cyclical and defensive investments.
Cyclical assets, which include companies in sectors like consumer discretionary and technology, typically perform well during periods of economic expansion.
On the other hand, defensive assets, such as utilities and healthcare stocks, may provide more stable returns and less volatility when the economy slows down.
Understanding these cycles can help you make more informed decisions. That’s why, we believe, it’s important to partner with an Austin investment advisor with experience in cyclical and defensive asset allocation to help identify when to rotate investments and build portfolios with defensive assets when economic conditions soften.
This balancing act is valuable for pursuing better returns over time and managing your risk of losses.
Watch our recent podcast, “The Evolving Role of Cash in Your Portfolio.”
5. The Importance of Partnering with an Experienced Investment Advisor Who Understands Macroeconomic Trends
Partnering with an investment advisor who understands macroeconomic trends can make a significant difference when you invest in the securities markets.
At Beck Capital Management, we blend our in-depth knowledge of economics with a personalized approach, so your investment strategy doesn’t just respond to market conditions—it anticipates them.
Our team’s experience with macroeconomic analysis allows us to guide clients through changing market conditions with insight and precision, helping them protect and grow wealth in various market conditions.
Whether you’re preparing for retirement, seeking growth, or preserving assets, we’ll integrate the power of macroeconomics into your plan, in an effort to provide you with a strategic edge and a more resilient portfolio.
Let Beck Capital Management be your partner in building a financial future based on informed decision-making in various market conditions.
