Oros surveys mid-year conditions in risk assets, addresses rising inflation expectations, and considers the durability of the post-pandemic recovery for alternative investment strategies.
From the original report
Selected passages from the original publication. Historical observations reflect the report's publication date, not current market advice.
This Friday marks the long-awaited start of the 2020/1 Olympics in Tokyo. Many hoped the games would serve exclamation point on the global emergence from the depths of the pandemic. This triumph has come under scrutiny from both the game’s organizers and investors who have begun to question the durability of the global recovery.
Powell as the “talking about talking about tapering” meeting. Yet the Fed’s insistence that inflationary pressures remain temporary and resolve to maintain ultra-easy monetary conditions lessened concerns that the FOMC would be forced into preemptive tightening due to inflation. Faith in the Fed Put remains alive and well.
The material reset in the long end of the treasury market has been attributed to factors beyond Fed-speak. Wall Street’s zealous over-positioning towards the crowded “reflation trade” unwinding in dramatic fashion, disappointing employment data, and the uneven nature of the inflationary figures concentrated in used car prices and airlines tickets, are each undoubtedly important factors. However, perhaps most potent, as we enter what might be the fastest earnings growth quarter in nearly a century the dreaded word “peak” has begun to make its way into many investor’s psyche.
In practice, the fears that growth may be as good as it gets are in many ways warranted and extend beyond economic momentum of the economy. Prospects for additional fiscal spending have been replaced by apprehension over higher taxes and fiscal drag. Fed tightening may not be imminent but is certainly on the horizon. The proliferation of the highly contagious Delta variant only adds to such uncertainty around the outlook into the back half of ‘21 and into next year.
While the bond market has certainly adjusted expectations for potential deceleration, as is often the case, no one remembered to tell bullish Wall Street equity analysts and macro forecasters. Margins, already near record highs are expected to push to new heights. Wall Street has forecasted 4.2% GDP growth in 2022 following 6.6% in 2021. As the reopening continues to conclusion and we lap very easy comparables it raises the question of whether the growth trajectory of the economy has materially accelerated over the medium to long term. A difficult case to make as uncertainty grows.
For educational purposes only; not individualized investment, tax, or legal advice. Investing involves risk, including loss of principal.
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