Sticky Inflation Means Downturn Risk for Stocks Just Got Higher
Investors took solace in GAP Inc.’s higher-than-expected earnings last month. But sticky inflation means US corporate earnings could be revised lower again.
Photographer: Gabby Jones/BloombergA recession likely lies ahead and with inflation still stubbornly high, it may be deeper than previously thought. While it isn’t a death knell for stocks yet, rate hikes at a galloping three-quarter percentage point pace are unprecedented in their ferocity. Eventually the Fed will achieve its aim of slowing the economy and that’s when stocks will take a hit along with corporate earnings.
We are a long way from being able to say inflation has been conquered since core inflation is still rising prodigiously. Here’s the thing though; inflation alone isn’t going to make or break returns for stocks and bonds. A decelerating economic growth outlook, and how individual companies deal with it, is what will ultimately matter.