Summer is traditionally regarded as a sluggish time for U.S. stocks, given the Wall Street adage: “Sell in May and go away.” This year, though, may turn out to be markedly different from past years.One reason is bullish investors have steadfastly held on to the view that U.S.
Theoretically, Zaccarelli said by phone, policy makers would need to raise rates by another 75 to 100 basis points — or more than the 50 basis points of hikes implied by policy makers’ projections — to put inflation on a path toward 2%. However, he doesn’t see that happening. Fed officials are “talking tough, but we don’t think they will actually hike more than one more time, before holding rates steady above 5.25%-5.5% for six to 12 months.
Markets are caught in a somewhat complicated moment, in which there’s plenty of disagreement over what lies ahead. The continued gap in expectations boils down to a fundamental difference between what markets appear to be wanting the Fed to do — which is put a quick end to its most aggressive rate-hike cycle in four decades — and what the Fed is duty-bound to do — keep hiking until inflation falls swiftly back to 2%.
“Not only is the unemployment rate too low in order to win the fight against inflation, but the wealth effect from booming stock markets is going to exacerbate the problem,” Zaccarelli said. Stocks that have traded near record highs are going to reduce the incentive for consumers to cut back on spending, and “only a recession or another bear market in stocks has the ability to shock consumers into cutting back.