Why do markets seem concerned about inflation?

Why do markets seem concerned about inflation?


MARIA: WELCOME BACK TO AMERICA’S TRADING DOWN THIS MORNING. VOLATILITY ON WALL STREET HAS BEEN SO SIGNIFICANT. DOW AND S&P 500 AND A 10 MONTH WIN STREAK YESTERDAY. FEATHER WAS THE WORST MONTH SINCE JANUARY 2016 FOR THE INDICES FOR JOINING US NOW IS CIO THINKS SMITH. GOOD TO SEE YOU. THANKS FOR JOINING US. WHAT’S GOING ON WITH THE MARKET RIGHT NOW?>>WE’RE ADJUSTING TO INFLATION THAT IS PICKING UP BUT NOT RUNNING AWAY. INTEREST RATES ARE COMING UP AS WELL BUT IN NO WAY IS COMPETITION TO THE STOCK MARKET. WE HAVE A SITUATION IN 2017 IN WHICH THE MARKET WAS REACTING PERFECTLY RATIONAL TO THE FUNDAMENTAL NEWS OF AN ECONOMY THAT IS GROWING BOTH HERE AND ABROAD. CORPORATE PROFITS EXPANDING BOTH HERE AND ABROAD AND BENIGN INFLATION AND LOW INTEREST RATES. BY THE WAY, THE BOND MARKET WAS EQUALLY AS AN VOLATILE AS THE STOCK MARKET IN 2017. THOSE LATTER TWO, INFLATION AND INTEREST RATES ARE NOT ENOUGH, BUT IN NO WAY ARE A PROBLEM WITH THE MARKET ADJUSTING TO GOD.>>IS THIS A THREAT? WAS IT THAT THE FOURTH QUARTER GDP REVISED SLIGHTLY LOWER. WE ARE TALKING EARLIER ABOUT SOME ESTIMATES FOR THE FIRST QUARTER COMING DOWN A LITTLE. IS THAT A THREAT TO EARNINGS AS FAR AS YOU CAN SEE?>>I DON’T THINK SO. THE TAX REFORM IS A HUGE BOOST TO EARNINGS. REGULATORY REFORM, WHICH DOESN’T GET ALL THAT MUCH TALK, BUT THAT’S A HUGE BOOST AS WELL AND PARTICULARLY CONFIDENCE. IT’S INTERESTING, WHAT WOULD HAPPEN IF WE GET THE NORMAL FIRST-QUARTER RULE AND I CAN’T EXPLAIN WHY THE FIRST QUARTER HAS BEEN TRADITIONALLY OFF. THEN WE GET THE INTEREST RATE HIKE IN MARCH BUT WE HAVE FIRST-QUARTER LEAD TO EARLY APRIL LESS THAN EXPECTED. DO WE THEN GET THE JUNE HIKE ON THE TABLE AND MAYBE WE ARE LOOKING AT THREE HIKES, NOT FOUR. SOME ARE MAKING FIVE FOR SIX. DAGEN: YOU RAISED THE ISSUE ABOUT INFLATION AND AND WHY THE MARKETS SEEM TO BE SO CONCERNED ABOUT THAT. GREG RICE IN “THE WALL STREET JOURNAL” “WALL STREET JOURNAL” TODAY THEY CHOOSE TRILLIONS OF DOLLARS LITERALLY ON INFLATION BEING A NONEVENT. WALL STREET SPINNING NOT WIN THE FEDERAL RESERVE’S BEEN IN NOW WAY. HE LAYS OUT A POSSIBLE SCENARIO WERE INFLATION CAN PICK UP A LOT MORE THAN PEOPLE EXPECT ABOUT A 2% MARK AND COULD DO SO VERY QUICKLY. HE LAYS OUT THE LOW UNEMPLOYMENT THAT WE’VE SEEN, WHICH USUALLY GIVES RISE TO MUCH HIGHER PRICES. THE BIG TAX CUT, BIG BOOST IN FEDERAL SPENDING. A FALLING DOLLAR, RISING OIL PRICES AND PROTECTIONISM IS ANOTHER REISSUE. HE LAYS OUT THE CASE FOR IT. HE MIGHT BE IN THE MINORITY FOR THAT, BUT AGAIN THAT IS NINE AT INVESTORS AND CALMING CONCERNS. MARIA: DOES THIS WORRY YOU? ONE POLICY SEEMS TO BE ONE AREA OF VERY DISRUPTIVE.>>I AGREE THAT WOULD BE A POLICY MISTAKE AND SOMETHING TO WORRY ABOUT. ANYTIME WE HAVE ENACTED TRADE RESTRICTIONS, TARIFFS, IT DOES NOT.>>WOULD HAVE TO BE LIKE A RIP OFF OF NAFTA FOR IT TO BE SOMETHING TO HAVE A HUGE IMPACT ON MARKETS?>>EVEN THE PIECEMEAL APPROACH TO KNOW THROUGH A STEEL AND ALUMINUM, THAT DIDN’T HELP IT HAD TO BE RESCINDED SHORTLY THEREAFTER. HE TOOK IT BACK IN 03. LOOK, WE COULD HAVE A CYCLICAL SPIKE IN INFLATION, BUT HE EMPHASIZE CYCLICAL. THERE WERE THREE SECULAR FORCES THAT ARGUE FOR INFLATION LONG-TERM. GLOBALIZATION WHICH IS ANOTHER WAY OF SAYING WE HAVE AN OVERSUPPLY OF LABOR WORLDWIDE. DEMOGRAPHICS, AGING OF THE BABY BOOM GENERATION BOTH HERE IN DEVELOPED COUNTRIES ABROAD AND TECHNOLOGY. THOSE ARE THREE SECULAR FORCES ARGUES FOR LOW INFLATION. MARIA: DO YOU WANT TO USE THIS MARKET?>>ABSOLUTELY. EVERY SINGLE PULLBACK HAS BEEN RELATIVELY BRIEF AND NOT VERY QUICKLY. JUST GO BACK TO THE LAST CORRECTION IN THE MIDDLE OF 2016 IN WHICH WE HAD THE WORST OPENING FIVE WEEKS IN ANY CALENDAR YEAR IN MARKET HISTORY DOWN 14%. FEATHER 1150 THATCHER QUARTERLY STATEMENT MARCH 31st, YOU WERE AHEAD. YOU DIDN’T EVEN KNOW THERE WAS A CORRECTION. TRAINED TO DO THAN 4% GROWTH IS STILL POSSIBLE IN 2018?>>4% IS A STRETCH. BUT LOOK, IF WE GET 3%, THAT’S 50% BETTER THAN WHERE WE FED FOR THE PRECEDING EIGHT YEARS. MARIA: NO KIDDING. AND EARNINGS OF 20% IS EXPECTED

One thought on “Why do markets seem concerned about inflation?

Leave a Reply

Your email address will not be published. Required fields are marked *