Investors haven’t fully understood inflation yet, warns economist Mark Zandi
Investors may want to hold on even tighter.
Moody’s Analytics’ Mark Zandi believes Wall Street is grossly underestimating the severity of an inflation comeback, and warns it will affect every corner of the market – from big tech to cyclical trades.
“Inflationary pressures will develop very quickly,” the company’s chief economist told CNBC’s “Trading Nation” on Friday. “I don’t think there is any shelter here.”
Recent street inflation swings paused on Friday as major indices ended the week in positive territory. Bullish activity came as government bond yields eased.
The S&P 500 is only 3% off its record high, while the tech-heavy Nasdaq rose 1.55% on its first positive day in four years.
Zandi claims the market is overconfident about rising interest rates. He sees inflation “dead”.
So far, the benchmark yield on 10-year Treasury bills has risen 72% this year. It hit a 2021 high of 1.62% on Friday and then fell due to some sluggishness in the February employment report.
However, Zandi predicts that the labor market will warm this year, reflecting a booming economy.
“We have brought the pandemic to an end, a boatload of financial aid is coming, and we have a lot of people piling the demand and a lot of savings that are going to unleash,” Zandi noted. “The growth will be very, very strong – lots of jobs, falling unemployment [and] Wage growth. “
As a result, he warns investors that they will have to get used to wild market fluctuations that last longer than two weeks. According to Zandi, even stocks tied to the economic recovery don’t offer investors a safe haven.
“These are broad macroeconomic forces that will affect all parts of the market equally,” said Zandi.
His forecast envisages a sideways market for one to three years with spurts of volatility due to foam and rising interest rates.
“Most importantly, valuations are very, very high in historical terms,” said Zandi.
Bottom line: a three-year horizon may not be long enough for investors in this environment.
“You should think about the next five or ten years,” said Zandi. “I think it will be a very difficult market for investors with a short-term perspective to navigate, and I don’t know that there is one part of the market that is doing significantly better than the other.” “”
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