OPINION: As earnings season ends and the recent rally fades, investors must weigh up a complex mix of short-term worries and long-term risks. Here’s what to consider.
Earnings season finally ended this week. And so did the bear market rally that had given investors hope that the worst had passed.
“These superbubbles are events unlike any others: while there are only a few in history for investors to study, they have clear features in common.“One of those features is the bear market rally after the initial derating stage of the decline, but before the economy has clearly begun to deteriorate, as it always has when superbubbles burst.
Each cycle is different and unique – but every historical parallel suggests that the worst is yet to come.And then there’s the historic global tightening of monetary and fiscal policy that Powell’s speech shows is far from done. “Between COVID in China, war in Europe, food and energy crises, record fiscal tightening, and more, the outlook is far grimmer than could have been foreseen in January,” he says.
“The low inflation world had three pillars: cheap immigrant labour keeping nominal wage growth “stagnant” in the US; cheap Chinese goods raising real wages amid stagnant nominal wages; and cheap Russian natural gas fuelling German industry and Europe more broadly.
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