The Fed is determined to suppress inflation, can the US economy avoid a hard landing?

Source: wind

When Fed Chairman Powell himself admitted that there is no guarantee of a “soft landing” for the U.S. economy, the possibility of a “hard landing” has risen sharply. Morgan Stanley’s wealth management department said that the recent U.S. bond and U.S. stock markets have reflected investors’ concerns about the U.S. economy.

Lisa Shalett, chief investment officer at JPMorgan Wealth Management, said on Monday: “The downturn in the stock and bond markets has grown to resemble classic cyclical bear market behavior rather than a simple adjustment. Fed policy will still accelerate the pace of tightening, balance sheet Balance sheet reductions are also on the agenda and imminent, while inflation appears a bit stubborn. Investors are turning their attention to the possibility of a growth panic.”

Morgan Stanley sees a 27% chance of a U.S. recession in the next 12 months, up 5% from March. The Institute for Supply Management’s (ISM) manufacturing purchasing managers’ index (PMI) is also a “worrying sign” as it shows growth is decelerating, according to Lisa Shalett.

Both stocks and bonds have suffered this year as the Federal Reserve tries to fight inflation by raising interest rates. Lisa Shalett wrote: “A portfolio with equal proportions of stocks and bonds would have lost more than 10% over the past six months, the worst experience since the financial crisis. With the fight against inflation now in earnest, the Fed The policy regime has hardened, and rising interest rates will always weigh on the market.”

The New York Fed said on Monday that its Empire State business conditions index, which measures manufacturing activity in New York state, plunged 36.2 points in May to minus 11.6.

Ed Clissold, chief U.S. strategist at Ned Davis Research, said in an interview that the Fed is raising interest rates to control inflation, or to achieve a so-called soft landing. But the market is taking a skeptical stance and is trying to sort out whether the Fed can make a soft landing or has made a policy mistake.

Markets are likely to continue to experience high volatility in the coming weeks, while “testing” recent lows to see how far the sell-off may be “exhausted,” Ed Clissold predicted. The market’s narrative of the future is biased towards a recession, and if this is the case, investors will increase the weight of bonds in their portfolios as a hedge, and asset allocation diversification still works.

In terms of specific allocations, Ed Clissold said he reduced his holdings of stocks, increased his cash holdings, and held “market-weighted” bonds, as investors’ focus on inflation concerns will begin to shift to “growth concerns.”

In a signature bear market, the negative catalyst is not just higher interest rates and lower valuation multiples, but an actual shift in earnings momentum, according to Lisa Shalett. During this phase, balance sheet strength and credit markets come under closer scrutiny.

Hunter Hayes, a portfolio manager at Intrepid Capital who invests mostly in high-yield corporate bonds, said in a phone interview on Monday that he has increased his position in corporate debt by 1.16% over the past few months, which he expects to have in It will hold up well during a downturn.

“The earnings season in the first quarter was solid by any measure, but from recent market behavior, it’s clear that the market is Little attention is paid to players. This is a macro-driven market, so positive macro developments, good news on inflation, may be needed to turn stocks around.”

Morgan Stanley’s U.S. economic research team just downgraded U.S. economic growth by 100 basis points to 2.6%. The Morgan Stanley research report said that although the goal is a soft landing, the Fed will accelerate the pace of monetary tightening due to the pressure of controlling inflation, giving too little room for economic growth, and various factors in the global market are complex, including Russia. The conflict in Ukraine and the disturbance of the epidemic will create more problems. In short, the global economy will decelerate faster than predicted.

Editor/Corrine

This article is reprinted from: https://news.futunn.com/post/15601694?src=3&report_type=market&report_id=205821&futusource=news_headline_list
This site is for inclusion only, and the copyright belongs to the original author.

Leave a Comment