The era of the Great Exasperation arrives for investors


The Great Moderation is dead, and now the obituaries are rolling in.

The last 30 years may not have been the best of times for investors. The 2008 financial crisis was no fun, for example, and even the Greek debt crisis was nerve-wracking, taking just a couple of recent outbursts. But looking back, it was a golden period.

“In our view, the Great Moderation, a period of steady growth and inflation, is over,” the BlackRock Investment Institute wrote this week. It was, BlackRock said, a remarkable period of stability.

Barclays also stepped in, marking the end of a “mostly calm and predictable macroeconomic backdrop” that has helped investors for three decades. In its place, the bank said, is “a new era of instability.”

Another name for this could be the Great Exasperation.

The horror show in equities is going on for the third quarter in a row, and the stories that fund managers tell themselves to try to make sense of the world (“narratives,” to use the broader term) just consistently fail. Rabobank describes it as “the maddening market pendulum”.

The latest big idea, a gamble on the US recession, has stumbled at an early stage after the country produced surprisingly strong jobs data.

That bet itself came to replace one on peak inflation, which also fell apart this week when annual inflation hit a blistering 9.1 percent in the US. “Mea culpa,” said Ajay Rajadhyaksha, a strategist at rates at Barclays. “Financial markets they are very good at making analysts feel foolish, and that has been especially true in 2022. I had expected the Fed to respond to moderating inflation with smaller interest rate increases. But the inflation data” They pulled him out of the water.”

Bond yields, which set the standard across different asset classes, are oscillating on an alarming scale and with unusual frequency: 0.2 percentage point here, 0.2 point there. It doesn’t sound like much, but these are wild scenes for debt markets. All asset managers can do is warn of more turbulence to come.

The crypto market, for all its faults, has an answer to this kind of malaise. Backers of non-fungible tokens (those super ugly digital artworks, often images of apes) have chosen to hire “vibe directors” or “vibe directors” to keep the mood upbeat as the price of these images disconcerting. decline, the Guardian reported this month.

“There are ways you can. . . trading is based on momentum which, for the most part, is based on vibrations,” said one advocate. IT’S OKAY. I guess if you’re going to lose money, you might as well have fun in the process.

It’s hard to imagine what form online cheerleading might take for the stock market now. High energy prices, the great weight of geopolitics and periods of volatility are arguments for “accelerating the green transition”, as Joachim Fels, global economic advisor for Pimco put it, although he accepts that it is a weak sauce in the search for positive results. market triggers.

Meanwhile, the feeling is serious. “Ouch,” wrote Mark Grant, chief global strategist at Colliers Securities, recalling a somber moment so far in 2022. “It has been swimming in a sea of ​​red ink inspired by hell.” There is no environment manager position for you.

“Yuck!” said Peter Tchir of Academy Securities, adding that he feels like he’s “banging my head against a wall.” Another potential vibe director to cross off the list.

Other analyst releases in recent times have come up with titles including “depressed feeling,” “peak anxiety,” “approaching breaking point” and possibly my favorite: “pain everywhere.” Everybody needs a summer vacation.

One of the solid golden rules of investing is to buy when everyone else is selling. Not this time. “We are bracing for volatility in this new regime,” BlackRock said. “Equities would suffer if rate hikes triggered a growth slowdown. If politicians tolerate more inflation, bond prices would fall. Either way, the macro environment is no longer conducive to a sustained bull market in both stocks and bonds.”

It stops a long way from managing the environment, but possibly the most constructive view of the week came from JPMorgan’s equity strategists. He said growth stocks could present “a tactical opportunity for a rebound.”

In part, that’s because this year has been so terrible. US tech stocks are down nearly a third so far in 2022, and “below the surface, the selloff has been even more dramatic,” says JPMorgan. More than half of Nasdaq shares are down 50 percent or more from their 12-month moving highs.

All it would take is a period of stability in bond yields to help lift stock valuations, Mislav Matejka at the bank suggested. However, he emphasizes that “this is a tactical call”, only for the short term.

Looking ahead, Dickie Hodges, manager of Nomura’s global dynamic bond fund, said in a note this week that “the rally in risk assets will be significant and rapid.” . . when it comes to. But that won’t be until the Fed confirms that it has inflation under control. Don’t hold your breath about it. In the Great Exasperation, this is about as positive as it gets.

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