– Don’t get too excited that inflation has potentially peaked, said Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in an interview on the podcast “What Goes Up” earlier this weekafter the consumer price index cooled slightly in July.
She was there to talk about the brokerage house’s cautious attitude to the turbulent market, and was aware that the US inflation figures, as well as the market’s positive reaction after the figures became known, do not change how the brokerage house views the market going forward.
– The idea that inflation may have peaked may be the right direction, and it appears that 9.1 per cent is going to be the peak of the overall CPI inflation cycle, she says.
She elaborates that although inflation fell in July, levels are still sky-high and three times above the inflation target of 2 per cent.
Inflation in the USA also ended at 8.5 per cent, against the expected 8.7 per cent, for July measured against the same period last year.
Expect increase of 50 basis points
When asked whether the market is pricing in an interest rate increase of 50 or 25 basis points at the next interest rate meeting, the investment manager replies:
– It will be difficult to raise by 25 points, but it is clear that if the labor markets become much weaker, the Fed will perhaps go down to 25. I still think that two bad employment reports are required, i.e. the one for August and the one for September, so that they really need to downgrade that much.
Bear market
She says that from January to June, a clear “bear market” has been seen as a result of the Fed’s policy, which was far behind the inflation curve.
– As a result, the market had to discount an increase in the Fed Funds rate. Real interest rates moved up, and the price-earnings ratio was dragged down.
She points to the recent rise in the markets as a clear “bear market rally”.
– We have to understand that if the economy slows down, companies’ profits go down. We haven’t seen that the income estimates have been adjusted down yet, that’s really what we’re waiting for, she says, adding:
– The recent price rise is a sign of a “bear market rally”.
–
