An already-murky outlook for U.S. stocks and bonds is growing darker, as sizzling inflation ratchets up expectations for how aggressively the Federal Reserve will need to raise rates.
Growing expectations for Fed hawkishness are an unwelcome development for a market already contending with uncertainty on multiple fronts, from worries over whether the central bank’s inflation fight will bring in a recession to the knock-on effects of rising real yields on asset prices.September also sees the Fed ramp up the unwinding of its balance sheet to $95 billion per month, a move some investors worry may add volatility in markets and weigh on the economy.
“The market has been completely wrong in judging the inflation question,” he said. “Today ... was a massive wake-up call that forced equity investors to face reality.”Even the time of year is to some, a source of concern: the S&P 500 has fallen an average of 0.5% in September since 1950, the worst monthly performance for the index, according to the Stock Trader's Almanac. So far for the month, the index was logging a 0.6% loss; for the year it is down over 17%.
It also dashed some optimism that the Fed would soon be able to "pivot" to easing monetary policy, hopes for which has periodically helped support risk assets. More declines in stocks and bonds promise further pain to investors who had counted on a mix of the two asset classes to cushion market declines.
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