The latest pickup on inflation is starting to ashore on Fed speeches. They are still in denial thinking that inflation will go down because of the shelter component, but are starting to hedge verbally on the fact that the road to 2% might be bumpy. Investors, however, are starting to think that may be they’re bluffing and have no control on inflation because there’s that much the Fed can do when government is spending like a drunk sailor. As a result, we may get another pause in rates by December 18th. The odds used to be around 70%, and as you can see below, they’re now at 54%, which is a coin toss. If we pair this with the geopolitical news (Ukraine war, Middle East) we have a cocktail that pushes volatility up. The S&P500 has seen weekly swings of $1Tn since September, but have been masked by the drop that volatility suffered after the election was clean and orderly, but we might still be in a high volatility regime.
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