As US Equities (^GSPC, ^DJI, ^IXIC) are trading at record highs, with the Dow Jones Industrial Average hovering above a record 40,000, new investing strategies may emerge, but how should investors frame this environment in their portfolios?

US Bank Asset Management Group Chief Investment Officer Eric Freedman and Mizuho Securities USA US Chief Economist Steven Ricchiuto joins Wealth! to give insight into investors as how to manage their portfolios as markets reach these record high levels.

Freedman tells investors to keep the Fed in mind: "The key consideration is where will we actually see interest rates settle out over time. And there's been a little more of a reconciliation between the Fed and the market in 2024. But 2025 and 2026 there's a bit of a disparity there. And one of the reasons why we think there's a disparity is because we think that the market expects commodity inflation to actually hang around and potentially even inflate from here. So one of the things that we're doing in portfolios is actually hedging with physical commodities."

Freedman also affirms this market is "Probably never a set it and forget it just because it is... one of those environments where where things are moving around quite a bit." He also lays out three areas where he is focusing right now: energy, technology, and the equal-weighted S&P.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Nicholas Jacobino

Video Transcript

Dow crossing 40 k significant milestone for investors that are trying to figure out, ok, what next they're charting their own strategy even from a high like this, what is that next?

Natural consideration as investors have to realize or think about the trends that have driven us to this point and whether that's still locked in so much so that they can remain comfortable in what are becoming some very overcrowded trades.

Yeah, I think that that really is an important focal point in terms of the notion of overcrowding.

Look, Steve and his team do outstanding work and, and we have similar conclusions about just the the importance of of interest rates when we're looking at things like this kind of cash flow models, the way that we try to look at stocks or bonds or other instruments.

And, and so the key consideration is where we actually see interest rates settle out over time.

And, and there's been a little more of a reconciliation between the fed and the market in, in 2024 but 2025 and 2026 there's a bit of a disparity there.

And one of the reasons why we think there's a disparity is because we think that the market expects commodity inflation to actually hang around and potentially even inflate from here.

So one of the things that we're doing in portfolios is actually hedging with physical commodities.

We think that's a good thing to own in a client's portfolio.

You generally don't have that same type of exposure in corporate earning.

And so owning more index based commodity exposure, we think it makes some sense.

The other thing that we're doing is really diversifying sources of cash flow for people who just own stocks and bonds.

We think there's lots more that you can do in the in the client's portfolio.

And so owning things like reinsurance, owning things like non agency mortgages, those are we think some unique and interesting sources of cash flow because again, this notion of rate cuts or no rate cuts, but also probably more importantly, where will the fed settle out over time?

Will we get back to that lower uh federal funds rate that we enjoyed post co eight or nine crisis?

We don't think so.

We think it's gonna probably normalize somewhere with the three in front of it as opposed to the five in front of it right now.

So I think there will probably be some level of rate cuts but not as many as the market may anticipate for this year and perhaps uh the balance of next year.

And so with that in mind, for a normalization portfolio strategy are, are there areas of the market that investors can feel comfortable with a, a set it and forget it strategy and, and which sectors would that be in Eric?

Yeah, you know, probably never a a set it and forget it just because it is a, you know, this, this is one of those environments where where things moved around quite a bit.

But I'll tell you some of the areas that we're pretty focused on.

Number one would be the energy market.

Again, we talked about commodities a second ago, but energy companies have been very disciplined.

They've been forced to be so through shareholder activism.

So that's a spot that we think there's still an opportunity to lock some value.

We still like technology.

Although we do think that there is again a big stand delivered time this week.

If you look at where you're seeing an A I the notion of more, let's call it O ems or, or producers, actually delivering services across the landscape will be important to justify evaluations.

I also think there's an area that is probably a little less uh you know, appreciated is equal weighted S and P. You talk about the dow reaching its all time high, equal weighted S and P is lagged for the last couple of years.

And for good reason because because of course, we've had more of a tech driven backdrop.

So we think that for those clients that are looking for a little more safety and also wanna participate in large cap companies because we actually think there's some refinancing risk in small cap, owning equal weighted S and P is probably our preferred method of getting large cap equity equity exposure right now.

Those would be the things that we uh we're more interested in this environment brand.