As more inflation data is released, many on Wall Street speculate as to when the Federal Reserve may cut interest rates within the first half of 2024. Investors maneuver through the confusion of how to best manage their portfolios as economic conditions fluctuate.

Adam Phillips, Managing Director at EP Wealth Advisors, joins Yahoo Finance to give insight into market conditions and what he advises his clients to keep an eye on, including gold futures (GC=F)

“Maybe investors have taken the Fed’s comments a little bit too far, but we certainly don’t want to fight the Fed and try to argue against what they’re obviously seeing and apparently optimistic about,” Phillips says. “So because of that, we are also becoming a little bit more bullish on consumer discretionary.”

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

JOSH LIPTON: And Adam, switching gears a bit here. I want to get your take on gold, if I could. Look at gold, it’s had a move this year. It’s up about 14%. Adam, when you’re talking to your clients, do you tell them, listen you should have gold in your portfolio, 5%, 10%, and kind of dial it up or dial it down depending on the environment?

ADAM PHILLIPS: Yeah. That’s a great question, Josh. So we’ve actually had commodities in the portfolio. Up until recently, we had broad commodity exposure. That was really our inflation play. It was broad. It did include precious metals like gold. We do not have that exposure anymore.

I think that gold could become a little bit more interesting here. And many see it as an inflation hedge. It’s a nice hedge against this geopolitical uncertainty, which we continue to face. But I think that when we are looking at rates that are– yields that are falling, it actually does make yield a little bit more attractive on a relative basis because as we know, yield doesn’t provide any income. And so it’s really hard to justify it when rates are on the rise.

So I think there could be a place for it. We are looking more broadly at alternatives, though. I think that the name of the game just going forward is going to be diversification, whether you’re focused on just your equity asset class and within large cap. Getting outside of those Magnificent Seven companies that have been leadership for so long. And then looking at other asset classes as well.

You want your fixed income. I think that the 5% return we’ve seen on the aggregate index this year just is a good reminder to investors that fixed income still does serve a role in portfolios. But then, I think there’s also an argument to be made for including different types of diversifiers.

These alternative assets that may include things like commodities, precious metals, or even these less liquid types of investment strategies that we’ve been looking at recently.

JULIE HYMAN: And, Adam, when you talk about diversity, let’s talk equity, specifically what sectors do you want to be in right now going into next year?

ADAM PHILLIPS: Yeah. So for a while, we’ve been favoring– we’ve been favoring industrials and health care shying away a little bit from staples, utilities, real estate– those that are more yield-oriented sectors. But I think as we look at the economic landscape, there’s no denying this resilience that we’ve seen.

And I think it’s hard to– maybe investors have taken the Fed’s comments a little bit too far. But we certainly don’t want to fight the Fed and try to argue against what they are obviously seeing and apparently, optimistic about.

And so because of that, we are also becoming a little bit more bullish on consumer discretionary. So that’s one of the newer areas that we’re starting to look at a little bit more. We’re looking at the fact that inflation is coming down. Employment is still holding up pretty well. It’s kind of this Goldilocks environment.

And so to the extent that the labor markets can remain strong, I think that’ll support this discretionary spending among consumers, at least over the foreseeable future.

JOSH LIPTON: Adam, thanks so much for joining us today. Always appreciate your time and insight.

ADAM PHILLIPS: Thank you.