Ian Harnett of Absolute Strategy Research.“This idea that we should expect the Fed pivot to be great news for equities, we just think is wrong,” he said over a sandwich between meetings earlier this week.
Specifically, markets have run hard beforehand, while valuations remain high. Interest rates have gone up, and the recession for earnings and the economy have followed.at the point that is most favoured by Federal Reserve chairman Jerome Powell: the three-month yield versus the 10-year rate. “The pace, scale and breadth of monetary tightening that we’ve seen in the last 12 months is unlike anything we’ve seen since the 1980s, and it would be a complete miracle if we escaped recession,” he said.Powell, he says, won’t respond to the first indications that inflation is easing. It will instead take a sharp rise in unemployment or a financial crisis of sorts to force an interest rate retreat. And for that reason, he argues, it’s a dangerous strategy to wait it out in equities.
Although ASR likes bonds on relative value, they’re cautious on reaching for yield in the credit market. That’s because a seemingly reliable forward indicator of corporate defaults is flashing red.has shown that banks are tightening lending standards while demand is dropping off. The current levels imply a rise in corporate defaults to between 8 per cent and 10 per cent, and if that eventuates, credit spreads are insufficient compensation.