It could be very difficult for Powell and the Fed to tame inflation without causing an economic slowdown.
Photo illustration by Barron’s staff; (reference) Dreamstime (5)
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Like Winnie the Pooh in the Hundred Acre Wood, investors have lived with the naive worldview that everything will be all right. That kind of thinking can you get mauled in a bear market.
The
Nasdaq Composite
is already in a bear market, and the
S&P 500
is likely to do the same, even if it hasn’t met the precise definition of a 20% drop just yet. The index, after all, has fallen 14% from its January all-time high after dropping 0.2% this past week, while nearly half of the stocks within it have declined at least 20%, as their valuations contract and their earnings decelerate.
It’s the kind of selloff that, in the past, would have sent investors shuffling into the market to buy their favorite stocks, knowing that no serious harm would come to them. But “now, any strength that transpires in equity markets is being used as an opportunity to sell, a clear sign that the path of least resistance remains to the downside, unless proven otherwise,” writes David Rosenberg, chief economist at Rosenberg Research.
Nowhere was that clearer than in the reaction to this past week’s Federal Open Market Committee meeting.
The Federal Reserve didn’t surprise anyone when it raised interest rates by a half-percentage point and announced the details of how it would wind down its balance sheet. And it didn’t get much reaction to the announcement, either. It was only when Fed Chairman…
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