FNArena’s Weekly Insights – May 09 2022

In this week’s Weekly Insights:

-Trend Is Turning For Corporate Profits
-No Weekly Insights Next Week
-FNArena Talks

By Rudi Filapek-Vandyck, Editor FNArena

Trend Is Turning For Corporate Profits

First came the bond market rout, because the Federal Reserve conceded it had waited too long to tackle inflation and thus portfolios globally needed a major reset.

Cue the January sell-off which in particular hit yesteryear’s champion performers, i.e. technology, growth, quality and low-vol defensives.

The Fed’s about-face also triggered the worst performance for bonds… ever? Arguably, with all major US equity indices down double-digits year-to-date, a bear market is unfolding for both bonds and equities which is exactly what happened back in 1994.

Back then, the Federal Reserve was equally in accelerated tightening mode to combat too high inflation.

Once the Fed was done, and inflation had been tamed, there followed no recession and equity markets globally embarked on a strong up-trend that would only be interrupted by a hedge fund debacle (LTCM) and the Asian currency crisis, until the TMT/Nasdaq bubble burst in March 2000.

Equity investors and commentators are by default optimistic and positive, so many will be counting on a repeat of the post-1994 era, which is possible, though not a guarantee.

Either way, first markets have to shrug off the tail end of this year’s bond market abyss and inflation scare; meanwhile the focus already is shifting to the consequences of accelerated central bank tightening, which might well end with the next economic recession. Consumers are now leveraged to low rates and housing is an important driver for most economies.….

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