Evercore urges AI tilt as Fed rate hike looms

EVERCORE URGES AI TILT AS FED RATE HIKE LOOMSMarkets widely expect the Federal Reserve to raise interest rates at least once this year as inflation remains above its 2% target, potentially marking the start of a tightening cycle under Chair Kevin Warsh and prompting investors to reposition portfoli…

EVERCORE URGES AI TILT AS FED RATE HIKE LOOMS

Markets widely expect the Federal Reserve to raise interest rates at least once this year as inflation remains above its 2% target, potentially marking the start of a tightening cycle under Chair Kevin Warsh and prompting investors to reposition portfolios.

Historical data show stocks tend to sell off roughly 10 days after an initial rate hike, while six- and 12-month forward returns are typically positive but below average, analysts said.

In that environment, investors should stay invested in equities with a tilt toward artificial intelligence, particularly in communication services, consumer discretionary and technology sectors, Evercore analysts led by Julian Emanuel said in an investor note.

They added that investors could complement that positioning by holding more cash, maintaining optionality in the SPDR S&P 500 ETF Trust AMEX:SPY through October 700 put options, and buying a basket of negative-beta stocks, which tend to move inversely to the S&P 500 CBOE:SPX.