Investors are preparing for the release of a U.S. consumer-price index that may show no meaningful letup in inflation, leaving few safe places to hide just as systemic risks may be growing.
That’s likely to add up to an environment in which investors will need to rely on less-traditional asset classes than ever before. When the U.S.
What makes the prospect of another 6%-level CPI reading so nerve-racking is the fresh uncertainty it could throw into financial markets over where the Fed needs to go with interest rates. Though policy makers prefer the PCE index and less-volatile core readings, the annual headline CPI rate matters because of its impact on household expectations. It’s been consistently above 6% since October 2021, though down from its peak of 9.1% last June.
Back in the 1970s, the S&P 500 SPX, -1.45% produced an average nominal return of 6% on an annualized basis for the whole decade, though the index was down by 1% a year in real terms, according to Deutsche Bank. Treasurys “suffered too,” with nominal returns also wiped out by inflation, said researchers Allen and Reid, who described the decade as one of the worst ever for major assets.
Over the past week, financial markets have toggled back and forth between pricing in the prospects of higher interest rates — reinforced by two days of testimony by Federal Reserve Chairman Jerome Powell — and gauging the damage caused by the central bank’s hikes thus far. The closure of Silicon Valley Bank has put a focus on the toll of higher rates, and placed a cloud over other banks.