The worries about an undesirable mix of inflation and stagnating economic growth they returned, but this time investors are increasingly being rid of such fears.
Over the past few years, the staggling concern occasionally occasionally because inflation continued to move over the target 2% of the officials of the Federal Reserve, but these fears constantly compensated into the power of the American economy.
Return of Donald Trump in the White House last month in historical election victory was only added to American exceptionality, or the idea that America has a uniquely superior characteristics – which was supposed to support the stock market as a whole, as well as American dollar.
Now seems that the threat of stagflation has joined the stronger, which show American shares. Indices that lag behind their European competitors in 2025. year and by falling 1.7% from the beginning of the year to the ICE index of US dollars, investor me.
A trading session on Friday, which has brought the largest drop in the Dow Jones Industrial Average and S & P 500 in 2025. year, only emphasized the worrying mood that has taken place among investors. The S & P 500 climbed the record value of 6,144.15 only last Wednesday.
Strategists Morgan Stanley said that investors began to question the sustainability of the narrative investment on “American excellence” in the middle of the debate on economic prospects and that this skepticism appeared in most of the talks with clients for several previous weeks.
Meanwhile, Tom Essaye, president and founder of Sevens Report, said his market analysis will carefully seek the growing risk of stagflation in the coming weeks, which would “be significant for shares”.
The following great update of inflation data arrives on Friday in the form of a January reading of the Personal consumption price index or PCE, which is the FED preferred price meter. The main and basic readings of the PCE is expected to be 0.3% on a monthly basis, based on the middle assessment of the economist, which surveyed Wall Street Journal – which would or coincide or slightly exceeded the numbers from the previous month. However, the annual main and basic PCE is expected to be reduced to 2.4%, ie 2.6%.
What worries market participants is that “stagflation is really difficult for central banks and traders because there is no obvious political medicine for her,” said Strategize Will Compernolle from Chicach Fhn Financial.
“For central banks, things go wrong in both directions,” he warned.
Inflation remained stubbornly above 2% since it was erupted by the end of 2021. and despite a series of FED rates between 2022. and 2023. It tends to act quickly, which means that the growth of the price is tended to go through the economy quickly when enterprises and The wider public get used to a world that takes away from low levels.
Data published on Friday have shown that the expectations of the Americans in terms of inflation have further increased above 3%, while the total prices of inputs for many companies also increased. Meanwhile, a five-year rate of profitability, which is a reflection of the expectations of market participants, climbed on a two-year maximum of 2.61%.
This increase in the rates of profitability is one of the factors that increased the prospects for the stagflation environment, says Kelvin Wong, a senior market analyst for Oanda. In his opinion, the FED will probably adopt a less than a folding monetary policy, which would tighten liquidity terms and could “initiate a medium-term negative return loop in the American stock market”.
On Monday, the main stock indexes ended mainly at a lower level, and Dow barely achieved growth after falling from 748.63 points on Friday. Meanwhile, yields on two-year-old and ten-year treasury records ended at the lowest levels of the year.
Together with data from Friday, a weakness in the service sector, the fall of the consumer moods and the fall of the existing house, announced on 14. February, “was so weak that now there is a breath of staggling in the atmosphere,” he said Compernolle from FHN.
“In the next few weeks, there are few data that would move the market from its current mood. It is therefore possible to remain in general pessimistic prospects where inflation remains high, the Fed Funds Rate remains high, and the economic growth slows down, “he added.
Although a lot of optimism is taken to PCE data from Friday, “we could see a sale [u obveznicama] If he doesn’t meet the expectations, “Caster said. It would be a relatively strong report on new jobs or weaker than the expected consumer price index for February to change some of the poor views of the market participants, but this data will not be published by 7. and 12. March.
