Hi Reader, here's what you need to know for April 5th in 3:10 minutes.

🌱 We have a couple of days off in the UK, so we’ll be taking the opportunity to look at a few of the biggest themes in the markets this year. First up: rising interest rates and the green revolution…

Today's big stories

Investors have been looking to the US Federal Reserve for clues about when they might raise interest rates…
… Luckily, there are simple ways to protect your portfolio from higher rates, says TS Lombard’s chief economist… – Read Now
… And even the sobering prospect of higher rates doesn’t seem to be stopping the wave of investment in the green energy revolution

Please Stand By

What’s Going On Here?

Investors have been on the edge of their seats as they watch the US Federal Reserve (the Fed) for any sign of a rise in interest rates.

What Does This Mean?

The US has pumped huge sums of money into its economy throughout the pandemic. But now that a recovery’s officially on the cards, investors are worried the influx of cash will send product prices higher, ultimately forcing the Fed to prematurely raise interest rates to keep this inflation in check.

That matters: stock market valuations are eye-watering in absolute terms, sure, but not when you compare them to record-low interest rates. Higher rates, then, will make safer investments like cash and new government bonds look more attractive, and riskier stocks look more expensive. So just the thought of rising rates has driven some investors to sell off both their priciest stocks and existing bonds last quarter – a trend that’s set to continue throughout the year.

Why Should I Care?

For markets: Watch the Fed.
The rest of the world’s central banks take their cues from the Fed, which is why it’s so important to keep an eye on what it’s planning to do. Case in point: when the Fed said in March that it wasn’t expecting to tweak interest rate policy despite the country’s improving economic growth outlook, the European Central Bank and Bank of England were quick to reassure investors they’re committed to low rates for the foreseeable future too.

For you personally: How to protect your portfolio from rising rates.
There are three adjustments you can make to your portfolio to set it up for rate hikes, no matter when they happen. First, invest in cyclical and value stocks like industrials and banks, which are set to benefit from an improving economy and rising rates. Second, buy into commodities like copper, since their prices tend to rise alongside inflation. And third, back the US dollar, whose value should rise in line with rates.

You might also like: Why central banks have so much power over your portfolio.

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2. Analyst Take

What Investors Are Getting Wrong About Interest Rates

What’s Going On Here?

With the coronavirus vaccine rollout well underway, the economy should slowly start getting back to normal.

But that’ll eventually force the Federal Reserve to get interest rates “back to normal” too, which means bringing them back up from near-zero levels.

As recently as December, most investors didn’t think that would happen for nearly four years. Now, though, they’re penciling in 2023.

And that matters: Fed interest rates are arguably the single-most important number in financial markets, and any shift could have a pretty significant impact on your portfolio.

Steve Blitz, chief US economist at TS Lombard, isn’t one to say he told us so, but he did tell us so: he said in December that a rate rise would happen sooner rather than later.

So now seems like a good time to revisit our interview with Steve, and show you what you can do to prepare your portfolio before the Fed does make the shift.

Read or listen to the Insight here

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