Economy: The revival of stagflation?

According to the Bank of, professional investors are increasingly pessimistic about the future, with the majority predicting that equities will fall into a bear market this year and the U.S. economy will suffer from stagflation, high inflation and slow economic growth. doing. The latest global survey of fund managers in the United States.

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  • Expectations for global economic growth have been high since the collapse of the Lehman shock in the 2008 financial crisis, according to the monthly Bank of America from about 300 respondents who collectively manage $ 1 trillion in assets. Investor sentiment is becoming more and more bearish as it has fallen to the lowest levels.
  • Inflation concerns, which appeared to have eased earlier this year, took revenge in March, with more than 60% of investors expecting the U.S. economy to be hit by stagflation, more than twice as many. Said. last month.
  • This year, rising inflation and geopolitical uncertainties associated with Russia’s invasion of Ukraine have caused the US stock market to hold more cash at unprecedented rates. It has been seen since April 2020, when pandemic-related lockdowns plummeted. The economy has fallen into a short recession.
  • The majority of professional investors are once again anticipating the risk of a recession, with 60% predicting a bear market in 2022 and more than 50% predicting high inflation to be “permanent.”
  • Historically, the market hasn’t worked during the stagflation period. When the US economy faced stagflation towards the end of President Richard Nixon, the S & P 500 fell by about 17% and 30% in 1973 and 1974, respectively.
  • Despite the current uncertainties in the market, “Investors need to be careful not to be the worst enemy of the portfolio and let emotions dominate decision making,” said CFRA’s Chief Investment Strategy. Said Sam Stovall. In the form of high quality, high dividend stocks.

Important quote

It’s hard to ignore what we see and hear from the predictions of others. Stovall predicts that stocks could enter the “mild bear market” this year, but “still heading for the 1973/1974 scenario where there was a bear market for more than two years and S & P. I don’t think the 500 has lost almost 50% of its value. “

To monitor

The Federal Reserve is expected to raise interest rates by 0.25% for the first time since 2018 after the central bank finished its two-day policy meeting on Wednesday. According to a Bank of America survey, many of the survey’s indicators indicate a “recession” outlook, but investors expect an average rate hike of 4.4 this year, up slightly from last month.

Key context

The stock market got off to a tough start until 2022, with investors swayed by the Fed’s inflationary war as well as the ongoing conflict between Russia and Ukraine, and energy prices soared. The S & P 500 is currently in the correction zone, more than 10% below the record at the beginning of the year. Meanwhile, the tech-intensive Nasdaq Composite is in a bear market, 20% below its November highs last year.

Contra

According to a recent report, “The risk of a recession over the next 18 months is higher than it was before Russia’s invasion, but the U.S. economy is likely to continue to grow, albeit at a slower pace than it initially looked. “. A note from Bill Adams, Chief Economist at Comerica Bank.

Article Translated from Forbes US – Author: Sergei Klebnikov

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