Growing up on the North Shore of Massachusetts, I did a lot of sailing as a kid. I don’t get out on the water much anymore, but the life lessons of sailing have endured. One of those lessons is the proper navigation of crosscurrents.

Crosscurrents in sailing refer to the sideways movement of water that can push a boat off course. Similarly, market volatility represents unpredictable movements that can throw your investment objectives off course. In both cases, sailors and investors must constantly monitor conditions and adjust their course to stay on track toward their goals.

Let’s examine the crosscurrents buffeting financial markets and how you can adjust. (I promise not to belabor the sailing metaphor.)

In recent days, the global equities market has surged, with major indexes in the United States, Canada, Germany, and Japan scaling new record closes. Central banks around the world, especially in the U.S., are pivoting to dovish monetary policies.

Paradoxically, this equity momentum comes amid a fluctuating bond market whereby rates, after a brief descent last week, have shown an upward tick.

The benchmark 10-year U.S. Treasury yield (TNX) has surpassed 4.2%, as investors nervously await the release on Friday of the personal consumption expenditures price index (PCE).

Inflation readings have been coming in hot lately. Although the long-term trend for inflation has been down, we’ve recently witnessed price spikes that reflect unexpected “stickiness” in some components.

Investors are betting that the Federal Reserve will cut interest rates at least three times this year and Fed Chair Jerome Powell made dovish noises at his press conference last week, but an undercurrent of nervousness prevails.

If the PCE comes in hot on Friday, stocks that have been priced for perfection may use it as an excuse to blow off some froth. Then again, the markets will be closed for Good Friday, giving investors a chance to digest the data over the extended Easter weekend.

Small-cap stocks are outshining their counterparts, reflecting optimism regarding the economic horizon. The energy sector also is emerging as a leader, bolstered by a spike in oil prices (see chart).

Oil prices are rising as traders expect greater crude demand due to economic growth. What’s more, OPEC+ production curbs remain in effect, helping to keep supplies tight. The recent rebound in oil prices is bad news for inflation fighters, but good news for energy investors.

While the market’s tone is bullish, political machinations on Capitol Hill underscore a different narrative. Congress managed to pass a $1.2 trillion funding package over the past weekend, thereby averting a looming government shutdown.

Despite partisan divides over issues such as immigration, defense budgets, and foreign aid, the passage of the bill provided temporary relief from legislative gridlock. However, the agreement only extends funding through September, suggesting further budgetary confrontations in the lead-up to the presidential election.

Ordinarily, I advise investors to ignore the political posturing in Washington, but the dysfunction has reached such epic proportions that you need to keep a wary eye on our supposed leaders.

Case in point: Hard-right House Republicans currently threaten to oust Speaker Mike Johnson (R-LA) for pushing through the bipartisan compromise on spending. Johnson could face the same fate as his defenestrated predecessor Kevin McCarthy, which would throw Congress into chaos.

Concerns over government deficits and burgeoning debt burdens will likely remain at the forefront this year. Elevated interest rates have propelled U.S. federal government interest payments above $1 trillion for the first time in history, doubling from figures just three years prior.

Course Adjustments

Market sentiment will remain tethered to Fed policy projections, alongside inflation and labor market indicators. But we’re witnessing a widening leadership base among equities, indicative of a bull market with momentum.

You need to navigate among the conflicting trends of market exuberance, high valuations, strong economic growth prospects, underlying fiscal challenges, softer monetary policy, rising bond yields, and vacillating inflation.

With the Fed clearly on the path toward looser monetary policy, specific sectors are poised to thrive. Historically, during periods of falling interest rates, sectors such as technology, consumer discretionary, industrials, and real estate have outperformed. You should rotate toward value plays in these sectors.

Also consider alternative investments such as cryptocurrency, for growth and also as a hedge. The crypto market has been soaring this year and I expect the bull market in digital currency to continue.

When considering crypto investments, it’s essential to research thoroughly, understand the underlying technology, and only allocate a portion of your portfolio to these assets, aligning with your risk tolerance and investment goals.

Every portfolio should have exposure to crypto. But you need to be informed, to make the right choices. The good news is, the experts at Investing Daily have done the homework for you.

Want to tap crypto’s massive money-making opportunities? Start receiving our FREE e-letter, Crypto Investing Daily. Click here now!

John Persinos is the editorial director of Investing Daily.

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This article previously appeared on Investing Daily.