Fed Conviction - Stonks have reacted to a strong, even adversarial Federal Reserve in the last couple of months.
You lived through it with us, apes. We watched eight weeks of market declines together, and my internal poverty alarm has been ringing for at least five weeks now as I watch my portfolio shrivel like George Costanza after being in a pool.
Unfortunately, there might actually be some further pain to the stomach if the Fed does its job and stays the course.
Even if inflation starts to temper in the coming months after a couple of rate hikes, the temptation could be for Daddy JPow to take his size 14 boot off the gas.
If inflation falls from a headline print to something more palatable, like 4-5%, in the next few months, the Fed might think that it could be time to slow QT and cut it out with the 50 bps rate hikes.
However, here at The Peel, we're of the mind that Jamie Dimon is probably right: there's a storm coming. We're not sure if it'll be a limp little tropical storm or a Hurricane Katrina, but we know the only way out is through.
Persistent inflation would mean a persistently hawkish Fed. This could continue to both stifle growth and effect demand destruction in the economy. This could catalyze further valuation compression for all of our favorite growth and tech names.
If this ends up being the case, the mid-term case doesn't look that great for equities. Here's to hoping that we don't realize this outcome.