Investors may want to hold on even tighter.
Mark Zandi of Moody’s Analytics believes that Wall Street is significantly underestimating the seriousness of a recovery in inflation, and he warns that it will affect every corner of the market – from big technology to cyclical businesses.
“Inflationary pressures will develop very quickly,” the company’s chief economist told CNBC’s “Trading Nation” on Friday. “I don’t think there is any shelter here.”
However, the recent nervousness of inflation on the streets eased on Friday, with the main indices ending the week on a positive note. The bullish activity came with the reduction of Treasury yields.
The S&P 500 is now just 3% of its record, while the high-tech Nasdaq gained 1.55% on its first positive day in four.
Zandi says the market is too optimistic about rising interest rates. He sees inflation “well ahead”.
So far this year, the yield on 10-year reference Treasury Notes has risen 72%. On Friday, it hit a 1.62% high in 2021 and then retreated due to some slowness in the February employment report.
But Zandi predicts that the job market will heat up this year and reflect an expanding economy.
“The pandemic is decreasing, a boat full of fiscal support is coming and we have a lot of people who have pent-up demand and a lot of savings that are going to release,” noted Zandi. “Growth will be very, very strong – many jobs, falling unemployment [and] wage growth. “
As a consequence, he warns that investors will have to get used to market fluctuations that last more than two weeks. According to Zandi, not even the actions linked to the economic recovery will offer investors a safe haven.
“These are broad macroeconomic forces that will affect all parts of the market equally,” said Zandi.
His forecast points to a sideways market for one to three years, with explosions of volatility due to foam amid rising rates.
“The most important thing is that the ratings are very, very high by any historical standards,” said Zandi.
Conclusion: a three-year horizon may not be long enough for investors in this environment.
“You should be thinking about the next five or ten years,” said Zandi. “For investors who are more focused on the short term, I think it will be a very difficult market to navigate, and I don’t know if one part of the market will perform significantly better than the other. “
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