Dow, why S & P seems less worried about inflation than anyone else

Jamie Dimon, CEO of JP Morgan I’m worried about inflation He doesn’t invest cash in Wall Street banks. Home buyers have withdrawn from the market amid the frenzy of pricing, and used car sticker shocks are now a bigger deal than dealer lot new car pricing.

Inflation isn’t hot in the news. May Consumer Price Index 5% or more spikes Removing food and energy prices from its inflation print, it was the highest inflation measurement since January 1992. On the other hand, the producer price is Ascended at their fastest pace In more than 10 years. And according to a survey by the Federal Reserve Bank of New York, Consumers are afraid of inflation It is also in the record.

Good question: why S & P500 Index Set a new record Dow If it is slightly below the post-pandemic rally record, it is hanging nearby. Nasdaq Just before the last 7 consecutive wins Federal Reserve Board Will it end on Wednesday? Currently, all three major stock market indices are about 90% (Dow) to over 110% (Nasdaq) above the pandemic lows.

For Nick Colas DataTrek ResearchAll comparisons between current inflation and past records are interesting to market historians, but have little to do with the stock market outlook. Stock futures It was muted on Wednesday prior to the Fed.

The patient bond market is the key

As the Federal Reserve has consistently stated, his bullish view of why bond markets are showing patience is that all the factors driving inflation are inherently temporary. It means that there is. This includes not only the purchasing power of car buyers through fiscal and monetary policy, but also used car prices that are skyrocketing as a result of chip shortages and declining new car supply in the car market. Removing the short-term factors, the CPI is actually close to what it was just before the pandemic hit the United States, just over 2% since February 2020.

Exceptions in favor of bears: house price and rent inflation. It is a non-temporary nature that can stick to the economy and weigh heavily.

Michael Englund, chief economist at Action Economics, said the affordability of homes is one of the issues that can test how the Fed is dovish. CNBC earlier this year In anticipation of summer inflation records. He said some of the price comparisons are short-term and are expected to take into account year-over-year changes from a pandemic shutdown, but homeownership and rental prices hold inflationary pressures at the June and July FOMC meetings. An event to monitor signs of potential changes in rhetoric, a semi-annual monetary policy testimony to Congress at Capitol Hill.

Sticking to the temporary inflation debate, “it may be deaf in the summer when the Fed is in front of Congress,” Englund told CNBC.

But the chorus says that while shelter inflation continues to rise, CPI can continue to rise rapidly if other factors such as energy, used cars, car insurance and airfares have boosted recent increases. We conclude that history alone is not enough. — “Safe in a temporary inflation camp”.

Don’t panic about inflation, watch out for stocks

Yields have receded from March’s highs, which has helped set S & P to a new record high.

The chorus currently thinks it’s cautious about stocks, but it’s not bearish in the market as it fears the more hawkish Fed.

“Recently, I’ve been a little cautious about US stocks (but not bearish),” he said after last week’s CPI. “A modest new high isn’t enough to change our view.” Stated. “Obviously, a decent chunk of our” no long-term inflation “treatise has already been priced by the Treasury. Big Tech should see a small catch-up rally as a result. But the next move with a big cap will still happen when companies report the second quarter in July and show the rest of the 2021 outlook. “

His big picture is that while the market can experience short-term panic related to bonds and equities, the shortest period is Stock trends Powell falls during post-FRB meeting commentary — bond markets often take a long time to actually catch up with inflation.Historians can see All CPI dating back to the 1950s Chorus said it was a time when the United States had exited the last major period of inflation that ended in the 1980s and inflation fell from a double-digit percentage to 2%. The Treasury bond market took 20 years to accept that inflation was hit in the United States.

“Conclusion: That’s why 10-year Treasuries ignore even 1-2-year CPI data,” he wrote in a recent note to the DataTrek client.

Lesson: “The Treasury market is a’show’market,” Chorus told CNBC. “I hope inflation will fluctuate over the long term before we revise prices …. This year’s high inflation says nothing before the future and the pandemic because of such low inflation. .. [the bond market] We’ll need a lot of evidence before we say inflation is rising again. “

Investors don’t expect hawkish Fed

“Forecasting inflation basically means predicting interest rates. For the past 12 years, it’s been a fool’s errand,” said Mitch Goldberg, president of investment adviser Client First Strategy. He expects broader inflation caused by supply imbalances to be temporary and ultimately mitigated by rising global production levels. Bonus.

Market professionals Not expecting a sudden hawkish turn In the Fed’s belief and belief that inflation is “temporary.”

According to a Bank of America fund manager survey, about three-quarters of professional investors agree with the Fed.

“It’s hard to say that [going to be] Rick Rieder, BlackRock’s Chief Investment Officer for Global Fixed Income, told CNBC.

There may be some more disagreement among the members of the Federal Reserve Board, but no rate hike is expected until at least 2023, and many traders do. Maintain the Fed’s position on Wednesday. “Some of the hawkish expectations have been exaggerated,” Michael Alone, chief investment strategy officer for State Street’s US SPDR business, told CNBC. “Mr. Powell says there are 7.5 million jobs left before the labor market returns to its original location.”

For the chorus, what bonds have to say will continue to be a more important market commentary.

Dow, why S & P seems less worried about inflation than anyone else

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