Investors should avoid being lured back into riskier stocks and funds by this January rally, according to a strategist at BlackRock. Wall Street is off to a solid start in 2023, with all three major averages positive in January. The Nasdaq Composite Index was up 8% at Tuesday's close. However, Gargi Chaudhuri, head of iShares Investment Strategy, said in a note to clients on Tuesday that this rally looks like another head fake, similar to last summer's. "So far, price action in January 2023 bears an eerie resemblance to that in July 2022 when risk assets rallied and rates fell as investors bought into the idea of a 'soft landing' – the notion that slowing growth would slow inflation and obviate the need for further Fed hikes," Chaudhuri said. "Many investors once again seem convinced that inflation is all but beaten and that slower growth will not only obviate the need for further hikes, but even allow the Fed to cut rates before the end of the year," she added. Last summer, the S & P 500 rallied in July and then broke above 4,300 in early August. But the rally petered out and the broad market index fell back to a new bear market bottom, below 3,600, in October. .SPX mountain 2022-06-01 The stock market enjoyed a short-lived rally last summer. Inflation has come down in recent months and a recession is widely expected this year, creating hope among traders that the Fed will soon pause its rate hikes and maybe even start cutting later in the year. However, Chaudhuri said that the market is getting ahead of itself . "We expect inflation to stay persistently high and we take the Fed at its word that it remains committed to achieving its mandate of long-term price stability (which it defines as about 2% inflation) and raise rates to between 5-5.25%. We do not expect the Fed to ease this year, even as growth slows, making it likely that we will see a recession in the U.S. in the second half of 2023," Chaudhuri said. If Chaudhuri is right, investors may be well served to stick with some of the strategies that worked last year. The note highlighted short-term debt funds, such as the 1-3 Year Treasury Bond ETF (SHY) and the 1-5 Year Investment Grade Corporate Bond ETF (IGSB) from iShares, as ways for investors to play defense. Short-term debt funds make sense in a rising rate environment because their value is hurt less by rate hikes and because, when the yield curve is inverted, it gives investors exposure to higher yielding assets that are considered safer than long-dated securities. In equities, Chaudhuri pointed to iShares' Russell 1000 Value ETF (IWD) as a fund that could continue to outperform, and said the Core S & P Small-Cap ETF (IJR) made sense as the group remains "relatively inexpensive" despite a fast start to 2023.