In the first trading day of the new year, U.S. financial markets were bogged down by the almost universal view that a recession is approaching.
A rally for stocks fizzled within the first 30 minutes of opening gains. Gold GC00, +1.05%, a traditional haven, touched its highest level in six months, rising alongside silver SI00, +0.56% and platinum PL00, +1.35%. And 10- to 30-year Treasury yields, nestled in what’s known as the long end of the bond market, fell as investors jumped into government bonds — driving those yields down respectively to around 3.8% and 3.9%.
“Recession is what everyone is betting on,” said Ben Emons, senior portfolio manager and head of fixed income/macro strategy at NewEdge Wealth in New York. “And, the thinking is, therefore inflation will decelerate faster than what people anticipate and the Federal Reserve could move quicker to a rate cut. But the whole narrative of a recession is something that’s bothering the stock market and other asset classes because it will mean shrinking margins and earnings.
“We see stock rallies built on hopes for rapid rate cuts fizzling. Why? Central banks are unlikely to come to the rescue in recessions they themselves caused to bring inflation down to policy targets. Earnings expectations are also still not fully reflecting recession, in our view.
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