The revenge of Wall Street’s bears: long-term rate woes take the air out of US$7 trillion rally

Most of the 900 respondents in a survey say US inflation has topped out

Still, 84 per cent of respondents say it may take two years or longer for the US Fed to bring inflation down to the official long-term target of 2 per cent

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Traders on the floor of the New York Stock Exchange (NYSE) on August 22, 2022. Photo: AFP via Getty Images

Published: 10:14am, 23 Aug 2022

A sober warning for Wall Street and beyond: The Federal Reserve is still on a collision course with financial markets.

Stocks and bonds are set to tumble anew even though inflation has likely peaked, according to the latest MLIV Pulse survey, as rate hikes reawaken the great 2022 sell-off. Ahead of the Jackson Hole symposium later this week, 68 per cent of respondents see the most destabilising era of price pressures in decades eroding corporate margins and sending equities lower.

A majority of the more than 900 contributors, who include strategists and day traders, reckon inflation has topped out. Still, a whopping 84 per cent say it may take two years or longer for the Jerome Powell-led central bank to bring it down to the official long-term target of 2 per cent. In the meantime, American consumers will cut spending, and unemployment will climb over 4 per cent.

All these bearish sentiments underscore the deep scepticism held by investors in the face of an unexpected US$7 trillion equity rebound of late. While stocks fell last week, S&P 500 has still trimmed its 2022 loss to 13 per cent versus the 23 per cent decline through its mid-June nadir.

US Federal Reserve Chairman Jerome Powell at the annual Jackson Hole Economic Policy Symposium in the US state of Wyoming, organised by the Federal Reserve Bank of Kansas City, on August 28, 2015. Photo: Reuters

“This is a bear-market trap,” Victoria Greene, founding partner at G Squared Private Wealth, said in an interview. “Inflation is the big, bad boogie man. Even if there really is a sustained decrease in inflation, it could take a while before prices actually come down significantly.”