Investing.com — This year’s surge in stock prices is likely to come to a halt over the summer as persistent inflation, even as economic growth slows, is likely to cloud the bullish path ahead.
“We see the market being capped in the summer due to the inconsistency between the consensus call for disinflation and at the same time the belief in no landing and in earnings acceleration,” JPMorgan said in a note on Monday.
The market had been thinking for months that the Fed would cut rates for market-friendly reasons, including slowing inflation, but now that growth is slowing, Fed rate cuts as they may need to bail out the economy would be the Goldilocks scenario of disinflation, Fed cuts and a rate cut. continued positive economic growth.
“Rather than easing for market-friendly reasons such as falling inflation, the Fed could still cut spending by year’s end, but likely only if there is more meaningful growth,” JPMorgan said.
The reason the Fed is cutting rates – either a contraction in rates because inflation is slowing in a healthy economic environment, or a contraction in weakness because the economy is struggling – should also be factored into the rate lies before us.
“As stocks broke away from the Fed, the market implicitly expected growth to accelerate, but that might not materialize,” JPMorgan said.
Previously, a drop in bond yields was greeted by bullish bets on stocks as investors counted on the Fed to cut rates and maintain the soft landing for the economy, but with growth in question, a rate cut would be a sign of concerns about the economy and therefore also about profit figures. grow.
“The next time bond yields fall, we don’t believe the market will react as positively as it did in November and December. We could return to a more traditional positive correlation between bond yields and stocks,” JPMorgan said.
But with the Fed’s next meeting just a week away, investors may not have to wait long for new clues as to how the recent economic situation is affecting the central bank’s thinking on economic growth, inflation and the three rate cuts coming. she predicted for this year has influenced. March.
