Where are we going?
This thought must be in most investors’ minds at the moment and probably the last couple of quarters as well. Last year as inflation was taking off and central banks hiked interest rates at an unprecedented speed, it seemed economies had to be broken in order to fight off inflation. As the year went on and economies proved more resilient increasing voices called for a soft landing, a reduction in inflation without breaking the economy. Now some voices are calling for a reacceleration of the economy, especially in the US. This would imply stickier inflation and then we are back at square one.
So far this year, as economic data comes out, volatility in the market accelerates both in the equity and bond markets. Sometimes good news is good, sometimes it’s bad and vice versa. Add to this the indecisiveness of central banks and investors can change their minds on the direction of the market in a heartbeat. The US Federal Reserve is a prime example, having a hawkish tone with regards to inflation but with a sprinkle of dovishness, just in case. Some would say it’s keeping its options open, some would say it’s incompetence. I will leave you the judge of that.
The indicators coming out are at times so contradictory it is difficult to navigate the markets with much certainty. It would be so much easier to walk away for 6 months, a year or more and come back when things have normalized and see where we are at. But the lure of riding the next great bull market or avoiding the next big crash always makes us come back for another peak and eventually reels us back in.