Ed Yardini on the bear market, the Fed and inflation

The markets have been on a wild ride lately, swinging between gains and losses. However, the brutal selling means that the S&P 500 is still in a bear market.

When asked if the markets have bottomed out, Wall Street veteran Ed Yardeni said he didn’t think “we’re going to get out of this thing very quickly, not in the basic sense.”

“I think investors learned this year — ‘Don’t fight the Fed,'” he told CNBC’s ‘Street Signs Asia’ on Monday. The mantra points to the idea that investors should align their investments with, not against, the monetary policies of the US Federal Reserve. .

What has changed dramatically this year is that the phrase “don’t fight the Fed” now means not to fight the Fed when it fights inflation.

Ed Yardeni

Head of Yardeni Research

“For many years, the idea of ​​not fighting the Fed was whether the Fed would come easy [on monetary policy.] You want to be long-term stocks, said Yardeni, president of consultancy Yardeni Research. But what has changed dramatically this year is “don’t fight the Fed” now means not fight the Fed when it’s fighting inflation. This means that this is not a good environment for stocks in the short term. “

‘It’s too late to panic’

With inflation soaring to new highs this year, the Fed raised interest rates by 75 basis points last week – the most since 1994 – and signaled continued tightening ahead. Fed Chairman Jerome Powell said another 50 or 75 basis point increase is likely at the next meeting in July.

However, the economy He now faces the threat of stagflation as economic growth slows and prices continue to rise.

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Wall Street tumbled in response to Fed tightening and rapidly rising inflation. Last week the S&P 500 index posted its 10th low week in the last 11 weeks, and is now in a bear market. All of its eleven sectors closed on Thursday, more than 10% below their recent highs. The Dow Jones Industrial Average fell below 30,000 for the first time since January 2021 over the past week.

Yardeni said it “won’t end” until specific indications emerged that inflation, caused by rising food and energy prices, had peaked. Market watchers also blamed price hikes for the Federal Reserve’s excessive fiscal stimulus to the economy amid the Covid-19 pandemic.

“We have to see a peak in inflation before the market goes up significantly,” he said, adding that point could come next year.

However, Yardeni believes markets are “kind of in an exhausted phase” of selling.

“At this point, it’s too late to panic,” he told CNBC. “I think long-term investors are going to find that there are some great opportunities here.”

Recession will hurt the wealthy

Complaining about the possibility of a recession was mounting, as doubts floated about the Fed’s ability to deliver a smooth landing. A bear market often portends a recession – but it does not.

“This is going to be the first recession that will likely hurt the wealthy for a very long time, more than the average person on the street,” said Mark Jolly, global strategist at CCB International Securities.

“If you look at what happened to bond and stock prices and you look at the combined decline in bond and stock prices, we are on track to have the worst year of wealth destruction already since 1938,” he told CNBC’s “Squawk Box Asia.” Monday.

Jolly said that as interest rates rise, the value of people’s assets bought with borrowed money will go down, indicating that mortgages are at risk.

“Anything in the economy that is subsidized and long-term, which is basically private property, the collateral is down 20%,” he said. “Imagine what would happen to the banking system in any economy if your house prices fell by 20%.”

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