Americans are expected to head out on vacation this summer and flood into travel destinations after two frustrating years of confinement. But the economic backdrop is changing fast.

Predictions that the current decade would look very different from the last are coming to fruition in 2022—and producing a rising degree of anxiety among advisors’ clients and the general public. Suddenly, investors are dealing with the unfamiliar dual forces of sinking securities markets and inflation, after the latter was absent for more than three decades. Higher employment and wealth levels are juxtaposed against repeated market declines, and the public is losing its sense of financial complacency.

Haleh Moddasser, a managing partner at Stearns Financial Group in Chapel Hill, N.C., says she’s begun to see higher levels of anxiety among clients now that bonds and stocks, normally uncorrelated, are falling at the same rate. “Bonds are down almost as much as stocks, 11% versus 15%,” she says.

It’s not helping when investors are seeing horrific stories coming from Ukraine every day.

Uncertainty about the macro environment was the dominant theme at Mauldin Economics’ virtual Strategic Investment Conference (SIC) in early May. Since employment is still strong—six million Americans continue to look for work and 11 million jobs are available—the Federal Reserve’s Jerome Powell is likely confident that the central bank could raise interest rates without harming the strong job outlook. At least that was the feeling among conference participants like Jim Bianco of Bianco Research.

Others were more skeptical. David Rosenberg, head of his own namesake firm in Toronto, predicted that stock market woes would spill over into a housing downturn, leading the U.S. economy into a recession. Beyond supply problems in the energy, housing, food and other commodities markets, Rosenberg and Bianco attributed America’s inflation problem to its successive monetary and fiscal stimulus programs.

Inflation is global, but “why is the U.S. No 1?” Bianco asked, saying America’s inflation rate outpaced that of other nations by 3%, largely because its massive government programs dwarfed those of other nations. Rosenberg previously criticized the Obama administration for enacting insufficient stimulus after the Great Recession, but he called President Biden’s 2021 fiscal packages unwise.

Both experts agreed about the Fed chair’s objectives. A year ago, Powell was sounding “like a social worker,” Rosenberg said. Today, he sounds more like predecessor Paul Volcker, the famous inflation hawk who subdued inflation in the early 1980s.

Powell is still likely concerned about the conditions faced by less successful Americans, people who haven’t participated in the explosion of asset prices, Bianco said.

“Forty percent of the American public rents and has less than $1,000 in savings,” Bianco said. These folks “are getting killed by inflation and they are very mad.” If tackling that inflation means hurting the portfolios of wealthier people, the Fed will likely say: so be it. After all, 100% of the U.S. population has been affected by the inflation. And most equities are owned by America’s most affluent citizens, who can best afford to take a hit for the team.

The feverish housing market is one harbinger of the inflationary situation, Bianco said. Before Covid-19, only about 20% of homes in America were sold above the asking price. Over the last two years, that figure has surged to 55%. He said real estate agents, normally hired to get a fair price for buyers, have failed to understand how strong demand is among many buyers. (Prices in numerous markets besides housing, like food and energy, have also been influenced by a lack of supply.)

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