The Fed is set to unwind its pandemic-era policies. Here's how Wall Street pros are playing it

Published Wed, Nov 3 202112:40 PM EDT

Jesse Pound @/in/jesse-pound @jesserpound

The Federal Reserve's highly anticipated meeting on Wednesday won't cause chaos in the markets and investors should focus on stocks where fundamental trends are strong, according to professional fund managers. The central bank is widely expected to announced a slowdown of its monthly asset purchases and give updates on its view of inflation. In recent weeks, market expectations for multiple rate hikes in 2022 have increased after the Fed was previously split on even a single rate hike next year. Jeff Kilburg, the chief investment officer at Sanctuary Wealth, said the expected move would be "most telegraphed taper of all time" and didn't expect a major move in interest rates as a result of the decision. Kilburg said that one area he was bullish on into the Fed decision was networking technology. The iShares North America Tech-Multimedia ETF (IGN), which includes stocks like Arista and F5 Networks , should do well whether rates are moving sideways or slowly rising, Kilburg said. Additionally, one of the investment models Kilburg uses is increasingly bullish on transport stocks, which could see a boost from infrastructure spending from Washington. "This is all about some of these names that have been held back due to the Covid uncertainty," Kilburg said. Financials are often popular stock plays when the Fed moves to tighten policy. Kilburg said that he likes the major banks as a group going forward but more for their large profits than their potential exposure to rising rates. Kevin Simpson, the chief investment officer at Capital Wealth Planning, agreed that the taper was unlikely to make waves in the market. "I think markets have baked in taper. They haven't baked in the rate hike increases -- that's going to be debated for the next two years, that's what we're going to talk about. I don't the market is going to have much of a reaction today," Simpson said. In the short term, Simpson said he expects earnings and the holiday shopping season to dominate markets more than the Fed. He pointed to Apple and Nike as companies whose recent earnings have taken a hit due to supply chain issues but could bounce back in the months ahead because demand remains strong. Karen Firestone, the CEO of Aureus Asset Management, said she wasn't planning to make major trades around the Fed decision because her firm's portfolio was already well-positioned for rates to slowly rise from here. Firestone said she likes large-cap tech stocks such as Alphabet and Microsoft — "none of which are going to be hurt by rates because they've got a lot of cash and a lot of cash flow" — and financial stocks that could benefit from an improving economy and higher rates such as American Express and Charles Schwab .

A man walks outside The Federal Reserve Bank of New York in New York City, U.S., October 12, 2021.

Brendan McDermid | Reuters