Investors haven’t fully grasped inflation is ‘dead ahead,’ economist Mark Zandi warns
Investors may want to hold on even tighter.
Moody’s Analytics Mark Zandi believes Wall Street is significantly underestimating the seriousness of an inflation comeback, and he warns it will affect every corner of the market — from big tech to cyclical trades.
“Inflationary pressures will develop very quickly,” the firm’s chief economist told CNBC’s “Trading Nation” on Friday. “I don’t think there’s any shelter here.”
Yet, recent inflation jitters on the Street got a reprieve on Friday with the major indexes ending the week on a positive note. The bullish activity came as Treasury yields eased.
The S&P 500 is now just 3% from its record high while the tech-heavy Nasdaq gained 1.55% for its first positive day in four.
Zandi contends the market is too sanguine about rising interest rates. He sees inflation “dead ahead.”
So far this year, the benchmark 10-year Treasury Note yield has soared 72%. On Friday, it hit a 2021 high of 1.62%, and then receded due to some sluggishness in the February employment report.
But Zandi predicts the labor market will heat up this year and reflect a booming economy.
“We’ve got the pandemic winding down, a boatload of fiscal support coming and we’ve got a lot of folks who have pent up demand and a lot of savings that they’re going to unleash,” Zandi noted. “Growth is going to be very, very strong – lots of jobs, falling unemployment [and] wage growth.”
As a consequence, he warns investors will have to get accustomed to wild market swings that last longer than two weeks. According to Zandi, not even stocks tied to the economic recovery will offer investors a safe haven.
CNN Business/Hanna Ziady
It’s been a year since markets crashed. Is another reckoning around the corner?
It’s been nearly a year since the coronavirus pandemic ended the S&P 500’s longest-ever bull run and sent stocks everywhere into a violent nosedive. The turmoil was a fitting start to a year of frenzied activity.
The virus continues to wreak havoc on our daily lives, but markets have long since forgotten the painful reckoning.
The big bang: March 12, 2020 handed Wall Street its worst day of losses in over three decades. The S&P 500, Dow and Nasdaq Composite suffered double-digit declines, with the pan-European Stoxx 600 index logging its worst day on record.
The collapse felt particularly shocking because markets had been shrugging off the coronavirus for weeks, even as alarm bells sounded in various corners of the global economy.
The latest: Many of the hallmarks of 2020 are still evident — and not just in lockdowns, social distancing and working from home. The exuberance that’s defined equity markets over the past 12 months has kept pushing stocks to all-time highs this year.
The coronavirus is still with us, too, but investors are now banking on a swift and strong recovery as vaccine rollouts gather pace and the United States gears up for another enormous stimulus package.
Big risk: Like this time last year, equity investors may be underestimating the size of potential stumbling blocks. Ironically, a booming economy may not be good for stocks because it could increase funding costs for companies and rob equities of their main selling point: superior returns.
Bond yields have moved higher on increased inflation expectations, although from rock-bottom levels. Still, the shift has caused stock markets to wobble in recent days over fears that central banks could lift interest rates to prevent soaring prices and might rein in asset purchases sooner than anticipated, taking excess cash out of markets.
While a strong recovery is good for corporate earnings, higher rates make debt more expensive, which could become a problem for companies that have borrowed heavily through the crisis. Stocks also look relatively less attractive when bond yields rise.
Fox Business/Jonathan Garber
Tech entrepreneur John McAfee charged with fraud, money laundering in cryptocurrency schemes
The Southern District of New York has charged tech entrepreneur John McAfee and his cryptocurrency team with fraud and money laundering conspiracy crimes related to two schemes that netted them $13 million.
McAfee, 75, and his executive adviser, Jimmy Gale Watson Jr., 40, are accused of crimes including conspiracy to commit commodities and securities fraud, conspiracy to commit securities and touting fraud, conspiracy to commit wire fraud, substantive wire fraud and conspiracy to commit money laundering for their alleged roles in two schemes relating to the fraudulent promotion to investors of cryptocurrencies.
The charges carry maximum prison sentences ranging from five to 20 years and also include the potential for financial penalties.
“McAfee and Watson exploited a widely used social media platform and enthusiasm among investors in the emerging cryptocurrency market to make millions through lies and deception,” Manhattan U.S. Attorney Audrey Strauss said in a statement.
The men allegedly used two schemes related to the promotion of cryptocurrencies to investors.
Gold rebounds from 9-month trough on U.S. stimulus, lower bond yields
Gold rebounded on Monday from a nine-month low hit last week, as bond yields retreated and the passage of a massive U.S. stimulus package boosted bullion’s appeal as a hedge against inflation.
Spot gold rose 0.4% to $1,707.81 per ounce by 0523 GMT, after hitting its lowest since June 8 at $1,686.40 on Friday. U.S. gold futures climbed 0.4% to $1,704.90.
“The market probably sold a bit too much last week on higher yields and yields seem to be plateauing a little bit right now,” said Stephen Innes, chief global market strategist at financial services firm Axi.
The yield on 10-year Treasury notes held below an over one-year peak hit on Friday, reducing the opportunity cost of holding the non-interest paying gold. [US/]
The passing of the $1.9 trillion COVID-19 relief plan by the U.S. Senate on Saturday also provided support.
“Inflation is definitely going to go up” because of rising oil and base metal prices, said DailyFX strategist Margaret Yang.