Uncertainty about the Federal Reserve’s ability to keep track of inflation without sinking the economy stirs up fear of stagflation, so it takes more than a big bounce on Friday to mitigate fears of the bear market for equities. Sustainable inflation.

Stagflation is a “terrible environment” for investors, usually losing the value of equities and bonds at the same time, causing havoc in traditional portfolios split 60% into equities and 40% into bonds.

That was already the case in 2022. Bond markets have lost ground as Treasury yields, which move in the opposite direction of prices, soared in response to the highest inflation in more than 40 years, with expectations for aggressive monetary tightening by the FRB. Since the S & P 500 Index’s record ended on January 3, this year, equities have been on a slide away from the benchmark for large caps on the verge of officially entering the bear market territory.

iShares Core US Aggregate Bond ETF AGG,
-0.43%
By Friday, it has decreased by more than 10% to date. It tracks the Bloomberg US General Bond Index, which includes the Ministry of Finance, corporate bonds, muni, mortgage-backed securities, and asset-backed securities. S & P 500 SPX,
+ 2.39%
It has decreased by 15.6% in the same range.

An analyst at PGM Global, based in Montreal, said in a note last week that the situation “has virtually no place to hide.”

“Not only do long-term government and investment grade credits move almost one-on-one, but long-term government bond sellouts more often coincide with the S & P 500 down date,” they said.

Investors looking for comfort were disappointed on Wednesday. The long-awaited US consumer price index for April showed that the annual pace of inflation slowed from 8.5% in March to 8.3%, a 40-year high, but economists said it slowed more. Unstable food and energy prices, which were looking for a core reading to get rid of it, showed an unexpected monthly rise.

It emphasizes the fear of stagflation.

Davis is also the portfolio manager of the secondary interest rate volatility and inflation hedged exchange traded fund IVOL.
+ 0.69%,
With approximately $ 1.65 billion in assets, it aims to act as a hedge against rising bond volatility. She said the fund holds inflation-protected securities and is exposed to the difference between short-term and long-term interest rates.

She said in a telephone interview that the current interest rate market is “very happy” and that the Fed’s rate hike is “disinflationary” when tightening could do nothing to solve supply-side problems. It shows the expectation that it will create an environment. The coronavirus pandemic has plagued the economy.

Meanwhile, analysts and traders were arguing whether the stock market Friday bounce signaled the start of the bottoming out process or was just a bounce from an oversold state. The bottom skepticism has increased.

“After a week of mass sales, inflationary pressures have eased slightly and the Fed seems still married to raising 50 basis points for each of the following two: [rate-setting] Quincy Crosby, Chief Equity Strategist at LPL Financial, said:

Mark Halbert: The beginning of the end of the stock market revision may be near

Mark Newton, Head of Technology Strategy, said: Fundstrat.

It was a considerable bounce. Nasdaq Composite Index,
+ 3.82%,
It entered the bear market earlier this year and fell to a low of nearly two and a half years last week. Friday surged 3.8%, the highest daily increase since November 4, 2020. Still expensive 2.8%.

The S & P 500 rose 2.4%, almost halving the weekly decline. As a result, the US large cap benchmark fell 16.1% from a record close in early January after closing Thursday ahead of a 20% pull back to meet the technical definition of the bear market. Dow Jones Industrial Average 30 kinds average DJIA,
+ 1.47%
It increased by 466.36, or 1.7%, and decreased by 2.1% weekly.

read: Despite the bounce, the S & P 500 is dangerously close to the bear market.This is an important number

According to Dow Jones market data, all three major indices show S & P 500 and Nasdaq’s longest growth since 2011 and 2012, respectively, falling for the sixth straight week and a long weekly streak. The Dow has booked the longest losing streak since 2001, the seventh consecutive losing week.

The S & P 500 has not yet officially entered the bear market, but analysts believe there is no shortage of urine behavior.

As Jeff de Graaf, founder of Renaissance Macro Research, observed Wednesday, the correlation between stocks has remained in the 90-100 deciile, suggesting that stocks are trading almost in unison. Means step performance.

Analysts say the S & P 500 has “approached discomfort” to the bear market, but it’s important to remember that a significant decline in the stock market is normal and frequent. Barron’s said the stock market has seen 10 bear market recessions since 1950, as well as many other corrections and other significant recessions.

However, the recent recession following the speed and scope of the rally could, of course, upset investors, especially those who have not experienced a volatile recession, the Schwab Financial Research Center said. Randy Frederick, Managing Director of Trading and Derivatives, said. Telephone interview.

He said the rally saw “every single sector of the market is rising.” “It’s not a normal market,” and now the worm has changed as monetary and fiscal policies tightened in response to hot inflation.

The proper response is to follow the same proven but “boring” advice that is usually offered in volatile markets. Stay diversified, keep many asset classes, don’t panic or make major changes to your portfolio.

“It’s not fun right now,” he said, but “this is how the market really works.”

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