Uncertainty is the stock market’s worst enemy. In mid-May 2022, the market faces rising interest rates, a strong dollar, the first major war in Europe since World War II, supply chain bottlenecks, lockdowns in China, tensions and hostility between nuclear powers… and a host of other issues.
Markets reflect the economic and geopolitical landscapes, which are nothing short of a mess right now. Increasing inflationary pressures and rising recession risks are not mutually exclusive. Alone, each is a challenge; together, the impact on stocks and other markets could be exponentially problematic.
The US central bank employs monetary policy tools to counter inflation and recessions independently. The tools, which address the economy’s demand side, offer few answers for stagflation and factors affecting the supply side.
Stocks have been trending lower as investors, traders and all market participants are worried about the future. The stock market does not climb but falls on a wall of worry.
The worst inflation since the early 1980s
CPI and PPI data for March were the highest since the early 1980s
CPI for April remained elevated at 8.3% with PPI at 11%
Real interest rates remain negative, fueling inflation
Recession fears increase as GDP declines
First-quarter 2022 GDP fell 1.4%
Two consecutive quarters of declining GDP is an official recession
Economic conditions remain uncertain and sluggish
Stagflation is the worst of both worlds
Inflation + Recession = Stagflation
Central banks have mutually exclusive tools for rising prices and economic slowdowns
Stagflation creates competing problems for the Federal reserve
Geopolitics is at the center of the stage
The war in Ukraine, sanctions on Russia and Russian retaliation create distorting prices
The “no-limits” cooperation between China and Russia creates mounting economic and geopolitical tensions with the US and Europe
The geopolitical bifurcation among nuclear powers divides the world and destroys the potential for global cooperation
The Fed slept in 2021, so the market has lost some faith in the central bank in 2022
The Fed and the administration had the opportunity to address inflation in 2021
The first major European war since WW II in 2022 creates supply-side issues for the global economy
The Fed and central banks have demand-side monetary policy tools. There are few tools to address supply-side problems
Volatility in the stock market and markets across other asset classes signal a lack of faith in the US Federal Reserve
Expect price variance to continue
Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!
Inflation + Recession = Recipe for Volatility
By Tradier Inc.
Image source: Three-shots / Pixabay
Uncertainty is the stock market’s worst enemy. In mid-May 2022, the market faces rising interest rates, a strong dollar, the first major war in Europe since World War II, supply chain bottlenecks, lockdowns in China, tensions and hostility between nuclear powers… and a host of other issues.
Markets reflect the economic and geopolitical landscapes, which are nothing short of a mess right now. Increasing inflationary pressures and rising recession risks are not mutually exclusive. Alone, each is a challenge; together, the impact on stocks and other markets could be exponentially problematic.
The US central bank employs monetary policy tools to counter inflation and recessions independently. The tools, which address the economy’s demand side, offer few answers for stagflation and factors affecting the supply side.
Stocks have been trending lower as investors, traders and all market participants are worried about the future. The stock market does not climb but falls on a wall of worry.
The worst inflation since the early 1980s
Recession fears increase as GDP declines
Stagflation is the worst of both worlds
Geopolitics is at the center of the stage
The Fed slept in 2021, so the market has lost some faith in the central bank in 2022
Thanks for reading, and stay tuned for the next edition of the Tradier Rundown!
Click here to learn more about Tradier Inc.
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Equities News Contributor: Tradier Inc.
Source: Equities News
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