A while ago, I wrote a note that claimed that changes in bond yields and inflation are much more important than changes in earnings for equity market returns – at least over shorter time frames like 12 months.
It has and I think markets have been too fast in expecting rate cuts. Pricing out some of the rate cuts will lead to short term market setbacks. But the journey for most of the year 2923 will be in my opinion towards lower yields and lower inflation.
The other key here is why are bonds declining. Yields are already low, and inflation expectations are already skewed to optimism, I think the challenge will be if longer term yields drift higher as market expectations reset.
In this scenario you have higher yields and lower EPS, although potentially more reason to pivot or cut, but in the face of a much worse economic outlook.
Well, I expect rare cuts to be priced out creating a short-term market setback. But the trend throughout most of 2023 I still expect to be lower in bond yields and lower in inflation.
Here is why I think stock prices will rise. Where else are people going to put their money? Even half-smart money doesn't flow into bank accounts these days, which leaves real estate and stocks. Real estate at a time of high inflation and high interest rates? I don't think so.
To what extent has potential monetary easing not already been discounted?
It has and I think markets have been too fast in expecting rate cuts. Pricing out some of the rate cuts will lead to short term market setbacks. But the journey for most of the year 2923 will be in my opinion towards lower yields and lower inflation.
The other key here is why are bonds declining. Yields are already low, and inflation expectations are already skewed to optimism, I think the challenge will be if longer term yields drift higher as market expectations reset.
In this scenario you have higher yields and lower EPS, although potentially more reason to pivot or cut, but in the face of a much worse economic outlook.
Well, I expect rare cuts to be priced out creating a short-term market setback. But the trend throughout most of 2023 I still expect to be lower in bond yields and lower in inflation.
Here is why I think stock prices will rise. Where else are people going to put their money? Even half-smart money doesn't flow into bank accounts these days, which leaves real estate and stocks. Real estate at a time of high inflation and high interest rates? I don't think so.