Stocks are entering a danger zone as they're already pricing in a Fed pause, top Morgan Stanley strategist says
Hopes of a Fed pause have fueled the rally, with just under 80% of traders expecting the central bank to have wrapped up its rate-hiking campaign by mid-June, according to
. Typically, investors bid up the price of stocks if they no longer have to worry about companies' borrowing costs to rise and eating up more and more of their cash flows.as well. Moreover, it appears many companies were able to raise prices enough last year to offset the impact of higher borrowing costs on their profits.
Negative headlines about the economy have tended to push stocks upward this year, as investors wager the Fed will have to call time on its tightening campaign soon. But that could be about to change now that markets' optimism about a Fed pause and falling inflation is fully priced in, according to Shalett.
"Bad economic news is now bad for the stock market," she wrote, highlighting a softening jobs market, a rise in bankruptcies, and a
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