There's a serious risk the US is headed for a prolonged period of high inflation and low growth, Deutsche Bank says. An era of negative returns for stocks and bonds may be the result.
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Max Adams
Oct 18, 2022, 16:43 IST
The stock market could continue to tumble in the face of rising inflation and a recession.sefa ozel/Getty Images
Good morning. Max Adams writing to you from New York.
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Markets have been saturated with inflation conversations this year. Have prices peaked? Core versus headline? Is the Fed responding too tough to lagging indicators? Etc.
But just as you were probably getting tired of it all, turns out there's a second part to this story, one that could play out over a longer period and be an even greater source of pain for stocks and bonds. It's the dreaded s-word: stagflation.
There are a few things that point to this taking shape on the horizon. First, this sort of thing can become a self-fulfilling cycle, wherein a period of difficult inflation like we're in now leads to further expectations for high inflation. This is how high prices become entrenched in the economy.
Second, there's some evidence of inflation becoming "sticky" already. The price for certain goods and services that don't change frequently are still accelerating even as headline CPI figures are edging slightly lower from June's peak of 9.1%.
The outlook comes as the Federal Reserve is gearing up for what's likely to be another jumbo interest rate hike of 75 basis points at the beginning of November. And yet, the analyst argues that Fed policy may not even be restrictive enough to tame inflation, and that the real policy rate is still "deeply negative".
3. Earnings on deck: Johnson & Johnson, Netflix, Goldman Sachs, United Airlines all reporting.
4. Wall Street is underestimating these 12 stocks, according to Goldman Sachs. Per the bank, there are a dozen names being overlooked by big investors, and they've got the potential to generate profits 20% greater than the consensus. See the full list of 12 here.
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5. The stock market just passed a big test to see if its secular bull run will continue. The nearly decade-old bull market is intact, according to Bank of America, following the S&P 500's bounce from a key technical support level. Here's what to know.
6. The oil market is concerned about another massive release of oil from US strategic reserves. That's according to Amrita Sen of Energy Aspects, who told CNBC Monday that a decision by OPEC+ to slash output could lead to more barrels being released by the US. According to Sen, another 100 million barrels could hit the market.
7. The pound rose against the dollar on Monday. The jump came as the UK government walked back most of the proposals that sparked chaos in markets. Newly appointed finance minister Jeremy Hunt backtracked on cuts to income taxes. The pound was up to 1.14 against the dollar by Monday afternoon.
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Curated by Max Adams in New York. Feedback or tips? Email madams@insider.com.
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