Federal Reserve Chairman Jerome Powell’s speech at the annual conference in Jackson Hole last week led to negative reactions in the markets, after stock traders around the world mistakenly bet that Powell’s speech would signal a slowdown in monetary tightening. However, the chairman announced exactly the opposite , and emphasized that the Fed’s determined war on record-breaking inflation rates around the world is here to stay. After removing from the episode every glimmer of hope for an earlier than expected easing of the monetary policy, not only the markets reacted with sharp declines, the world’s top economists also became more pessimistic.
■ The economists are already thinking about the day after inflation, and are recommending a dramatic change of direction Interpretation
■ The slowdown in China is helping to curb inflation around the world
■ The stocks worth investing in during inflation may surprise you
The latest of them is the strategist Mike Wilson from the investment bank Morgan Stanley. Wilson says more trouble is ahead, but not just because of high interest rates. “When the Fed resolutely stimulates hopes for a bearish pivot, we think the property markets may enter another round of sharp fluctuations. Unlike the first round, this time the decline in stocks will come mainly due to investors’ demand for a higher risk premium and the companies’ low profits,” says Wilson. The capital risk premium is the return that an investment in the stock market provides over a risk-free rate.
Morgan Stanley has earned a reliable reputation among the major banks on Wall Street, as the one who correctly predicted the upheaval that the stock markets suffered this year. The bank’s profit forecast model, based on data including the producer price index (ISM), the consumer confidence index, construction start data and credit spreads, indicates a large decrease in the profits of public companies in the coming quarters. Another model, based largely on regional Fed data, also predicts a drop in profits.
Wilson adds that the bank is confident that bond prices have bottomed out. The yield on the 10-year bond was 3.19% on Friday. “If Friday was a sign of a short-term low for long-term bonds (high yields), the S&P 500 and many stocks could get some relief again as bond yields decline before the next round of earnings-cutting. Make no mistake, though, with The weather will turn cool in the coming autumn, so will the growth, which will weigh heavily on the stocks,” he said.
Credit Suisse: “The coming months may be difficult”
Last week, the Swiss bank Credit Suisse published its global investment forecast for the second half of 2022, where the bank’s chief economist, Michael Strubeck, warned of “the coming months, which may be difficult for investors”, and thereby recommended that they reduce their weight in global stocks.
Next to Credit Suisse’s gloomy warnings about “unattractive stocks”, Goldman Sachs, who are sure that the world is at a turning point, provided their forecasts in light of global events – starting with the disruptions in the supply chains that do not stop even two years after the outbreak of the Corona virus, through the geopolitical instability, a process De-globalization and “increased sensitivity” to the climate issue. “All of these will create uncertainty and have the potential to contribute to an increased level of volatility in the market,” Julian Salisbury and Luke Sarsfield, global co-heads of the asset management division at Goldman Sachs, said at the time.