Stocks May Be Primed for Some Bruising Encounters
They’ve already discounted the first phase of recovery; any negative surprises in earnings and inflation data could have an exaggerated impact.
Amazon has brought the issue of labor costs into sharp focus.
Photographer: FREDERIC J. BROWN/AFP/Getty Images
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Brace yourself for base effects. The great reflation trade of 2021 faces an important confrontation with hard data over the next few weeks, as companies begin to announce earnings for the first quarter. As usual, the banks will go first, and they will be an interesting test of what is to follow. No sector has benefited more directly from the “reflation trade” of the last few months. Banks borrow short-term and lend over lengthier periods, so are helped by higher yields and a steeper curve (meaning longer-term rates rise by more).