Lately, inflation markers have been the bearers of bad news, especially for Equity Investor. A recent survey of global fund managers by BofA Securities adds to the already gloomy mood, highlighting that hopes of a Fed pause are crumbling.
Fears of a stagflation recession are at their highest since the 2008 financial crisis, while global growth optimism has hit a record low, the June survey report showed. Stagflation is a scenario of sluggish economic growth with high inflation.
Unsurprisingly, global profit expectations also fell to 2008 levels. The survey report said that such a sharp drop in global profit expectations occurred in the moments of the dotcom bubble burst, the Lehman bankruptcy and other Wall Street crises of Covid.
Global fund managers believe that central banks pose the greatest risk to their portfolios. Then there is the threat of a global recession.
This panic is reflected in the ongoing bloodbath among global equities. With retail inflation in the US at a record high, the US Federal Reserve is expected to be under heavy pressure at its policy meeting on June 14-15.
Analysts warned of a surprising surprise increase of 75 basis points (bps) up from 50 bps earlier. One basis point is 0.01%.
Simply put, the Fed may go further in the fight to contain inflation than ever before, thus increasing the risk of a recession. Note that the Fed will also launch its quantitative tightening program in June, which will put a halt to excess liquidity in the system. This is another downside for the equity markets.
Against this background, Lance Roberts, Chief Portfolio Strategist at RIA Advisors, remains concerned about the dire global economic fallout. “When the Fed reduced its balance sheet in 2018, it ran a monthly pace of $30 billion with very little inflation. Starting this month, the Fed will increase that reduction to three times the previous run rate, inflation with about 9%,” he said in his report on June 14.
Furthermore, Roberts cautioned that while the Fed believes they can achieve this shortfall without disrupting equity markets or causing an economic contraction, history tells otherwise. “There’s a storm on the horizon amidst rising inflation, falling wages, slowing economic growth and the Fed intent on tightening monetary policy,” he said.
The June Fund Managers Survey acknowledged that the US stock market has officially entered a bear market. This means global equity investors should be prepared for greater volatility, which is a key feature of a bear market. “Although the S&P 500 index reached bear market territory (i.e. a decline of 20% or more from recent peaks) in mid-June, many of its underlying stocks were in bear markets for some time,” said analysts at financial services company Charles. Schwab Corporation.
In his mid-year outlook released on June 14, Charles Schwab said weak earnings and profit-margin outlook could take another leg down for the market.
“Economic uncertainty may be at its peak in the first half of 2022, but remains high,” the report said. likely to continue.”