Jerome Powell signalled a slow-down in interest rate hikes – and markets loved it. But did he just make a long-term mistake by not decisively signalling the end of the era of monetary and market distortion? There are lessons to be learnt, not least being the role of inflation in a buoyant economy.
Halloween is a great time to be scared about markets. They are inconsistent, confused and uncertain, but the reality is even rising interest rates, inflation and trade wars sort themselves out - eventually. The real danger is how much worse bad politics and make a scary situation absolutely frightful.
The Fed just aggressively hiked 75 bp in the midst of the first major correction since 2009, making clear the game has changed, and we’re into a whole new cycle. While the market correction remains ongoing, when it flips, it will flip swiftly. Already there are positive signals to be seen – but only if you look outside the box.
Dead Cat Bounce or a renewed upside trend? The range of opinions and views on where markets are headed is diverse and confused – will bonds and stocks recover, or will energy, food and inflation shocks further destabilise sentiment. These are dangerous times, but fools will always rush in.
The outlook for markets remains dire.. no worries! But what chance governments, central banks, the economy and growth enablers suddenly turn up the good news and put it all right again…? Are we over-estimating stagflation and recession?
Markets look distinctly soft, and vulnerable to further downside pressure. The gaps between value, hype and narrative are becoming clearer – spelling opportunity, but also raising the risk of a crash.
After the brutal lessons of April, May will set the tone for a new market – lots of threats, but full of opportunity.
The shocking return of the Taliban dominates the headlines. It has critical implications for markets. Biden’s loss of credibility creates many hurdles and could drive the US towards isolationism – bruised by yet another flawed foreign adventure. Meanwhile, markets struggle with inflation and climate consequences.
Markets are fretting. Up one day and down the next? Do they believe in the dire fundamentals or inflation threat, or keep buying Central Banks juicing the markets? Never mind; hot disruptive tech stocks can only ever go up… But where do they eventually lead us? I suspect Tech will eventually kill us all…
US 10-year bonds and US equity are in fully rally mode. They show contradictory expectations for a stalled recovery and future strong growth! How can that be? Because the market is about what participants collectively think – and how markets think has been utterly changed by 12 years of monetary experimentation, repression, and distortion. We’ve got to change the way we think about markets.
