Almost all of Wall Street – and the Fed – have thwarted calls for 2022

(Bloomberg) – So far, 2022 has been a year when almost everyone on Wall Street got confused. As well as the Federal Reserve and the World Bank Group.

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Back in December, strategists from the world’s best investment companies such as JPMorgan Chase & Co. predicts that the S&P 500 will gain 5% in 2022. Economists have seen that the yield on 10-year US bonds reached an average of 2% by the end of the year. And even Goldman Sachs Group Inc. gave credence to claims that Bitcoin is on track to reach $ 100,000.

Yet six months later, an unprecedented coincidence of shocks ended one of the most powerful bullish stock markets and led to a spiraling rise in government bonds and other assets. The S&P 500 is down 23%, 10-year interest rates are 3.23%, and bitcoin has dropped more than half its value.

The market quickly shifted from “buy everything” to “sell everything”, and the long-standing “no alternative” phenomenon (TINA) in stocks has disappeared. Unforeseen events, including the war between Russia and Ukraine, have contributed to the highest consumer prices in 40 years. As a result, ultra-low interest rates and monetary incentives – essentially the basis of a rally after the pandemic – evaporated as the Fed and his colleagues sought to quell inflation.

“This is absolutely the end of TINA for the foreseeable future,” said James Atty, investment director at abrdn in London. “At 8% inflation is not very attractive on a real basis.

Even Jerome Powell, the chairman of the central bank, did not see the turbulence that comes from inflation. He expected prices to fall to levels close to the Fed’s long-term goal of 2% by the end of 2022. But now bond markets are signaling a recession as the Fed’s aggressive rise in interest rates poses a risk to economic growth.

“At that time last year, the Fed itself was still waiting [rates] to be almost zero at the moment, “said Deutsche Bank strategist Jim Reed. In less than half a year, this needle is already pointing at 3.5% by the end of 2022.

be patient with me

However, despite the sharp declines, market gurus maintain the belief that the shares will recover by the end of the year.

Oppenheimer’s John Stolzfuss still sees the S&P 500 ending in 2022 at 5,330 points, requiring a 45% increase over the next six months. Several others, including JPMorgan and Credit Suisse Group AG, have targets that require the index to increase by at least 30% in order to be met. Wall Street strategists on average see the S&P 500 rise 22 percent from Friday’s latest Bloomberg poll.

Of course, anyone can guess when Russia’s war in Ukraine will end or the throats of the supply chain due to China’s strict Covid policies will ease, raising price pressures in addition to tightening Fed policy.

But for Max Ketner, chief asset strategist at HSBC Global Research, the stock has not fully appreciated in a recession compared to other asset classes. “Overall, this means that there is an additional weakness for risky assets that are stored during the summer months.”

The S&P 500 fell 51% from a peak to a low between 2000 and 2002 and 58% during the global financial crisis.

Similarly, Michael Wilson of Morgan Stanley – one of the few bear votes in December – said the market decline of more than 20% still does not fully reflect the risks to corporate profits.

There is nowhere to hide

At first glance, all one can do is hide money under the mattress of gold and American bonds – perhaps the safest financial assets in the world – are also sinking.

Shares and bonds together are on track for their worst quarter so far. Meanwhile, credit markets have also suffered a blow.

So far this year, the world’s safest corporate debt pool has lost more than $ 900 billion, marking its worst first half of history, according to the Bloomberg Index. Corporate credit risk measures are also on the rise, with default swaps insuring high-quality European debt companies being the highest since April 2020.

Perhaps no other asset class has seen such rapid fluctuations in 2022 as cryptocurrencies.

Despite all calls for bitcoin to reach $ 100,000 earlier this year and claims that it is a hedge of inflation, the digital asset market is in a downward spiral.

Bitcoin has lost more than two-thirds of its value since it peaked at nearly $ 70,000 in November. Arguments that the world’s largest cryptocurrency is close to gold and an independent means of storing value have been silenced. Meanwhile, the crypto ecosystem of miners, traders and stock exchanges is receiving increasing attention amid layoffs, freezes and withdrawals.

It is still not easy to fix something in this market. There were big rallies and big failures, painting a gloomy picture. But HSBC’s Ketner said the trigger was obvious this year.

“Just as investors were obsessed with the idea of ​​’transitional inflation’ last year, the 2022 craze so far has been ‘peak inflation,'” he said. Inflation has not been transient, nor has it peaked yet. As such, “the last few days have been brutal.”

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