The start of 2023 has been kind to investors, with US and UK stock markets enjoying a rebound of more than 5 percent and Europe bouncing back by more than 10 percent. However, some investors may be getting carried away as cheaper money fuels an economic recovery and stock markets soar. Renowned Wall Street bear, Michael Wilson, warns that the S&P 500 could drop 26 percent from current levels, while Bank of America’s chief economist, Michael Hartnett, believes that the US Federal Reserve has yet to accomplish its mission to defeat inflation.
Investors are cautioned against jumping the gun and expecting the earliest stages of a bull run to be the most profitable. The world’s problems have not magically vanished overnight and this year could be much tougher than most people think. US stocks have now been propelled to unsustainable highs and the expectation that the Fed will start slashing interest rates hasn’t become a reality. Michael Wilson states that US markets have entered the “death zone”, likening it to mountaineering territory with high altitudes where oxygen levels are low and climbers struggle to breathe.
Many investors believe that inflation will continue to decrease, meaning the US Federal Reserve will start changing tack and begin reducing interest rates instead of increasing them. As inflation continues to plummet, the Fed has been signalling its intention to raise interest rates again. This increases the likelihood of a recession in the US and could lead to a drop of 7 percent on the S&P 500 by early March, with a “hard landing” later this year.
Additionally, US consumer price inflation rose 0.5 percent in January 2023, while annual CPI was a concerning 6.4 percent. Another cause for concern is the 517,000 jobs created by US employers in the same month. While this figure may appear to be good economic news, these investors are concerned about the delays caused by each positive piece of news that rolls in.
The US Federal Reserve could lead the way in matters concerning the economy, and much of the world follows its lead. As a result, Europe may not have the recovery it had hoped for, and China may get dragged into more wars. Markets are complex, so it is difficult to predict. However, with the air getting thinner, investors are urged to proceed with caution and keep checking their oxygen tanks.
عبدالرحمان زمین پیما
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آرمان جعفری
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