During 2022 – the market obsessed over one thing – inflation. How high? How fast? And for how long? That concern is now largely behind us… however investor’s gaze is about to pivot from CPI worries to employment (specifically entrenched wage growth). If Powell is to be successful in winning the war against structurally entrenched inflation – he needs to bring wage growth down to 2%. Today that figure remains above 5.0%. That’s going to take time… and is the market potentially caught offside?
"Macro / Economy"
Is the Market Fighting the Fed?
The market and the Fed are at odds. In short, equities don’t believe what Powell is saying. The market is betting the Fed is wrong and will be cutting rates by the second half of 2023 – where the ‘dot plot’ of 5.0% is a dream. My take: choose to fight the Fed at your own peril. Typically it doesn’t work out well.
The 40-Year Tectonic Shift
2022 will be remembered as an important turning point. Not because the S&P 500 surrendered 15% to 20%… it will be remembered for the tectonic shift in monetary policy. For the first time in over a decade – interest rates are finally trading at closer to “normal levels”. What’s more, we are not going back to 0% to 2.0% rates for a long time. And that has many implications for how to choose to invest…
A Textbook Reversal
We’ve experienced a 16% rally off the October lows. And it’s happened in short time. Why? Traders see a far more dovish Fed on much lower inflation / coupled with a mild recession. I’m not buying it… not yet.
For a full list of posts from 2017…