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For too long, more than a year, money management has been fairly common, with stocks higher. This raises concerns that something is going to go wrong and puts pressure on a few stock market items.
Earlier this month Janet Yellen was in charge of removing a bit of that foam. At a ceremony hosted by Atlantic Magazine, the former president of the Federal Reserve, now the U.S. Treasury Secretary, he said words that caused fear at the heart of some market participants: “Interest rates may need to rise slightly to keep our economies from overheating.”
It’s almost comical that this can trigger any reaction in the market. The Fed cut rates to zero and last year sparked a stimulus hose in the teeth of the coronavirus crisis. Now, thankfully, U.S. vaccination rates are high and infection rates are falling. Businesses are returning to normal, fast. Fast enough, in fact, it can cause bottlenecks and supply problems from wood to craft.
You don’t need a rocket scientist to see how that can come out. Making predictions is stupid, but I’m ready to get my neck out here: next The US interest rate movement will be larger, not smaller.
And yet: take out the fragrant salts. Following Yellen’s comments, some tech stocks that have been shining for the past 12 months have sprung up and Nasdaq Composite finished the day at nearly 2 percent. Yellen himself quickly clarified his remarks. He did not “anticipate or recommend” raising rates, however he is no longer in his domain.
Some analysts described the words of the Secretary of the Treasury as a wrong step to ignite volatility. The cooler heads saw it as an obvious expression. The reaction of the market only underscores the fact that some investors have had thin skin and the attention that monetary and fiscal policies have in choosing their words.
“Markets seem to have a decision to live in the past,” wrote Paul Donovan, chief economist at UBS Wealth Management. “Consumer price inflation in every economy tells us the price of oil a year ago. This is not a concern, but the markets want to worry about something.”
This week’s market movements once again suggested that there is a strong desire to worry. High-growth technology stocks on Tuesday fall Wednesday’s U.S. inflation reading was expected to be high. On Wednesday, them he fell again when inflation was shown to be hot.
Recent US Consumer Price Assessments a 4.2 percent increase in April a year ago – the coolest reading since September 2008. Some of the details were even more striking; used car and truck prices rose 10 percent in April alone, accounting for a large portion of the overall index’s gains.
Again, this should come as no surprise.
“Wall Street seems to be climbing the wall of concern,” said Gregory Perdon, investment manager at private bank Arbuthnot Latham. “Bears are constantly looking for signs that the world will end. They come up with all the possible excuses. The reality is that the only question that matters is whether it is okay to reopen it or not. And it goes well. And Europe is pulling. “
It makes reasonable sense to always say that the Fed likes to provide unexpected stimuli. He doesn’t like to impress the system with unexpected tightening measures that reduce financial conditions. So while the central bank has opted to keep the policy upside down, with inflation above that target, some rate-fixers have begun to mentally prepare the market to return to normalcy. The last days and weeks show that investors will have to learn to live with this.
Volatility is located in whiz-bang technology stocks, which seems like the right place. The bad news is, for example, if you’re Arkena Cathie Wood. Its main innovation fund is the monitoring of technology stocks fall more than a third since the February summit.
Shares closely linked to bitcoin and new U.S. companies are also on a rough track record. All this is due to the relationship in the bond market in the first quarter. Fixed-income specialists, a bunch at the best of times, were priced at an early rise in inflation at the start of the year. In particular, although 10-year U.S. earnings rose after the release of inflation data on Wednesday, they did not reach new highs.
Investors in unprofitable companies are in dire straits after a spectacular run. For everyone else, aside from those who believe the collection of inflation will be taken out of their hands, he is now ready to do frequent nerve tests.
katie.martin@ft.com
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