Source: Zhitong Finance and Economics
Recently, Lisa Shalett, chief investment officer of Morgan Stanley Wealth Management, commented on the latest inflation data and warned investors chasing the latest rally in the stock market: although the consumer price index (CPI) cooled slightly in July, do not get too excited about the idea that inflation may peak.
U. S. stocks rose after CPI data showed a cooling in inflation on Wednesday, and the data provided a glimmer of hope for the economy and the market. However, Shalett believes that the phenomenon of inflation peaking remains to be seen. While it is true that global demand is growing much more slowly than economists had expected, helping to ease many supply chain problems and easing some of the food pressure in inflation, but for markets that have been on a spree since mid-June, the rally is too early.
In addition, Shalett said CPI fell from its previous high in July, easing some of the pressure on the Fed, but core inflation remains close to 6 per cent, three times the Fed's 2 per cent target and far from a sustainable level. Shalett believes that before the federal funds rate approaches the core CPI, it will be difficult for the Fed to slow down the pace of rate hikes.
When it comes to the pace of tightening, Shalett said that raising interest rates by 50 basis points is still the main expectation of the market, but the possibility of raising interest rates by 25 basis points is very small unless the labour market completely collapses, that is, two labour reports in August and September need to show a bad employment situation before it is possible to slow the pace of interest rate increases to 25 basis points.
Finally, for the recent market rally, Shalett still believes that this is just a bear market rebound. She said that policies have slowed economic growth, and in this context, corporate profits will decline.
However, Shalett also points out that for now, the decline in corporate profits is still relatively modest, at 10 to 15 per cent, compared with between 35 and 60 per cent in the past three recessions (1991, 2001 and the financial crisis). So if profits in the s & p 500 fall by 10% to 15% over the next 12 months, the overall situation is not too bad.
Edit / isaac