Put together, it may lead to a market environment similar to the first few months of 2021, when long-dated Treasury yields spiked in response to building inflation expectations. Richly valued technology shares—which make up the bulk of the biggest benchmarks—are vulnerable in that environment, Suzuki said. Meanwhile, the Fed is expected to deliver three interest-rate hikes in 2022, adding to the pressure.
Despite months of sustained inflation and deeply negative inflation-adjusted wage growth, American consumers have hung tough—the University of Michigan’s final sentiment index actually rose in December. However, the inflection point for demand is nearing, in the eyes of Miller Tabak + Co.’s Matt Maley.
“If inflation remains strong, consumer confidence will begin to wane,” said Maley, the firm’s chief market strategist. “At some point, the higher prices causes consumers to pull in their horns and that will hurt profits in our consumer-driven economy.”
This article was provided by Bloomberg News.