Nasdaq ever so bad since 2008, will the Fed do like 20 years ago? From Investing.com

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By Alessandro Albano

Investing.com – Stagflation fears, coupled with the Federal Reserve tightening cycle and sub-forecast tech quarterly reports, pushed the Nasdaq to its worst month since October 2008 (-13.3%) as it entered of ‘bear market’ (-22% from the beginning of 2022), while it lost 8.8% in the month with a -14% loss since January.

And with the Fed opening its first 50 basis point rate hike for the first time since 2000 at its Tuesday / Wednesday meeting, May does not seem to show signs of a turnaround. Futures indicate a higher start for the first monthly session (+90 points), but for Charlie Ripley, senior investment strategist at Allianz (ETR 🙂 Investment Management, “investors are not comfortable with monetary policy”.

To counter an accelerated inflation to the highest levels since December 1981 (+ 8.5% in March y / y), the Fed also feared in the past week the possibility of increasing the Fed Funds target by 0.75%, a possibility that according to Ellen Gaske, lead economist at PGIM Fixed Income, “has calmed down in the past few days”. For the Fed rate monitor By Investing, com, the markets are almost 100% likely to have a 0.5% increase in federal funds.

“The Fed will anticipate hikes of 50 basis points in both the May and June meeting (with risks slightly skewed towards a 25 basis point hike at the June meeting instead of 50 basis points),” the economist said. there may be “a slower pace of Fed rate hikes by the second half of this year.”

“But for this to happen, monthly inflation readings will have to peak convincingly enough,” Gaske said.

If there is no moderation in inflation, the “Volcker” moment will not come “until the end of this year or early next year”, at which point the Fed will have had more time “to assess the effects of the winds. opposites that are already accumulating, for example tighter financial conditions; a fiscal rollback; high energy and food prices against the delay in wages and a slowdown in the global economy “, underlined the economist of PGIM.

The head of research of Integrae SIM Antonio Tognoli focuses on the risk of “stagflation”, recalling that “the data of last week (starting with the US GDP) seem quite clear: the war in Ukraine and the sanctions against Russia are dampening the economic prospects for growth, apparently more in the US than in Europe. Although with some differences, the two economies are slowly sliding towards stagflation “.

To decrease the inflationary pressure. according to Tognoli, central banks “should reduce the mass of circulating money (by raising rates and reducing the speed of circulation) and thereby reduce the demand for goods and services, while penalizing economic growth”. The fight against stagflation, however, involves “an increase in rates” which on the stock markets means “an increase in the risk premium required by investors”.

In terms of portfolio, the expert should prefer “a bottom-up strategy that favors the securities of those companies that produce cash, have an average profitability higher than that of their reference sector and are leaders in the market in which they operate. Furthermore, the asset class values, such as gold and real estate, should not be underestimated “.

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Nasdaq ever so bad since 2008, will the Fed do like 20 years ago? From Investing.com


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