With so much riding on the Fed’s moves, it’s hard to know how to invest

MAKING money was easy for investors when they could still plausibly believe that the Federal Reserve might back down on its aggressive campaign to subdue inflation at any cost. But harsh words from the Fed Chairman, Jerome Powell, backed by a string of large interest rate increases, finally convinced markets that the central bank meant business, sending stock and bond prices tumbling.

A nervous confidence returned as October began, with stocks experiencing a big two-day rally, but then prices sank anew. Investors at first seemed more confident that the Fed would reverse course, but anxiety returned as they worried about how much damage would be inflicted before that happened. Where the markets go from here, and how to position an investment portfolio, depends on whether and how deftly the Fed changes its strategy.

“A crescendo of factors is coming together that makes me think we’re going to have another few weeks of pain before the Fed capitulates,” said Marko Papic, chief strategist at the Clocktower Group.