As we all are aware, inflation has been to the upside. But, unfortunately, you must go back to 1980 to match what we see now. Last Friday’s inflation report proved this point.
We are now looking at two-year Treasuries reaching over 3.07%; the 10-year going to 3.15%. That is 150 basis points (1.5%) from the first of the year. This has resulted in a cascade of equity prices to the downside.
Fear of a recession has also weighed on the markets, but valuations are pretty reasonable. The P/E ratio is at 17, meaning that prices on equities are affordable and not extended. In fact, as of the morning, the markets are 17% oversold. I feel that a recession in 2022 is not in the cards and that earnings and full employment will stave off the occurrence. Look, markets are volatile, and there could be more pain ahead, but there are some great opportunities for the long-term investor.
The Federal Reserve is not acting fast enough and I feel a 100 basis point move would prove to the markets that they are serious. Even though this could be painful short term, it would reset the market and reestablish the bull market.
A cool down of escalating prices would be welcome.