- The latest MLIV Pulse survey, ahead of the central banker conclave at Jackson Hole, Wyoming next week, saw 68% of respondents anticipating the most destabilizing era of price pressures in decades eroding margins and sending stocks lower.
- In the meantime, survey respondents are betting that American consumers will cut spending because of persistently higher prices and unemployment is likely to rise to well over 4%.
“The Sand People are easily startled, but they’ll soon be back, and in greater numbers.”
– Obi Wan Kenobi, Star Wars Episode IV: A New Hope
It’s not just Sand People who get startled easily, so do bears, especially in a market as volatile as the present.
But just like the Sand People, bears will regroup, reorganize, and come back in greater numbers as evidenced from the hammering taken by stocks and bonds these past several weeks.
The latest MLIV Pulse survey, ahead of the central banker conclave at Jackson Hole, Wyoming next week, saw 68% of respondents anticipating the most destabilizing era of price pressures in decades eroding margins and sending stocks lower.
The MLIV Pulse survey of over 900 contributors, including professional analysts and day traders, reckon that inflation has likely topped out, but that the U.S. Federal Reserve would take as long as 2 years to bring inflation to the target 2%.
In the meantime, survey respondents are betting that American consumers will cut spending because of persistently higher prices and unemployment is likely to rise to well over 4%.
Which is why the unexpected US$7 trillion equity rebound, which has trimmed 2022 losses of the S&P 500 from 23% to just 11% looks shaky.
What markets are only just starting to price in is that although inflation isn’t likely to rise as fast, prices remain stubbornly high and that puts pressure on policymakers to continue to act, which is bad for both stocks and bonds.
To be sure, benchmark 10-year U.S. Treasury yields have settled comfortably below 3%, having peaked near 3.5% this year, and both retail and institutional investors have bought the dip in stocks.
But the rebound looks increasingly less durable, as current Fed funds futures show traders betting the central bank will raise benchmark rates to 3.7% before cutting borrowing costs sometime next year.
And while there is no shortage of risks that threatens to take down the nascent recovery in equity markets, a quickened pace of policy tightening, its resultant economic fallout, could spark a recession in substance, even if one is avoided in form.
