The peak inflation story that propelled investors back into risky assets
Unfortunately, there’s no sign the Federal Reserve will change its mind and agree with investors that rates should come down again next year.
The case for stocks is that peak inflation means bond yields can stabilize, and maybe even come down a bit. And it might be right, although the Fed is—deliberately—becoming less predictable. So, it’s hard to be as sure as the market seems to be.
I lean toward thinking this is a bear-market rally that won’t last. Investors wanting to load up on stocks at this point need the Fed to navigate a narrow route between too much inflation on one side and a serious recession on the other.
Either of these would sink the market.
James Mackintosh WSJ 11 August 2022
https://www.wsj.com/articles/the-markets-peak-inflation-story-fights-the-fed-11660225446
Rising real yields
“Instead, we suspect that real yields will rise over the rest of this year, contributing to a fall in U.S. equities and probably driving some underperformance relative to stocks elsewhere.”
That’s the view of James Reilly, an assistant economist at Capital Economics
Reilly says real yields are likely to keep rising in line with the expected trajectory of the Fed’s main policy interest rate which currently sits between 2.25% and 2.5%.
MarketWatch 11 August 2022
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