Topline
For the first time in more than a year, global investment managers are more worried about the risk of inflation on markets than they are about the risk of Covid-19, a Bank of America survey released Tuesday found, as Wall Street looks beyond the coronavirus crisis to the risks that accompany the massive fiscal spending measures that were required to manage it.
Federal Reserve Chairman Jerome Powell on December 1, 2020 in Washington, DC.
Key Facts
Of the 220 fund managers surveyed (who manage $630 billion collectively) 37% percent named inflation as the number one “tail risk” for investors.
Taper tantrums—the surge in U.S. Treasury bond yields caused by investor panic about the Federal Reserve tightening policy—were a close second, with 35% of fund managers naming them as the biggest risk.
A huge majority (93%) of fund managers surveyed said they expect inflation to rise over the next 12 months.
Those inflation fears have led to the biggest drop in exposure to risky tech stocks in 15 years, the survey found, while allocation to commodities has risen to an all-time high.
But despite the risks, investor sentiment overall is still “unambiguously bullish,” the survey found, with 91% of fund managers expecting a stronger economy in the future and nearly half of fund managers are now expecting a v-shaped recovery in global markets.
Key Background
Trillions of dollars in federal stimulus spending in the United States helped set the economy on the path to recovery, but it’s also fueled concern on Wall Street about ballooning levels of debt and the rapid inflation that could accompany the injection of so much money into the fragile economic system.
What To Watch For
The Federal Reserve will begin a two-day meeting today. Investors will be watching closely for any signal that the central bank under Fed chair Jerome Powell is thinking about tightening policy to tamp down on inflation concerns, though experts are not expecting the central bank to raise rates for months if not years.
Crucial Quote
“Powell will likely replay his best hits when discussing inflation, noting that price increases later in the year won’t be large or persistent,” Edward Moya, senior market analyst at OANDA, wrote Monday. “The summertime is when inflation could rear its ugly head, so Powell should be able to push back any concerns until then.”
Further Reading
AMC Skyrockets After Chinese Billionaire’s Firm Cuts Stake, Ushering In Bullish Reddit Traders (Forbes)
U.S. Budget Deficit Hits $1 Trillion With More Massive Stimulus Set To Hike Up Spending (Forbes)
Biden Gears Up For New Tax Hikes To Pay For More Stimulus—Here’s What We Know (Forbes)
Yellen Defends $1.9 Trillion Stimulus Price Tag: ‘This Package Is The Right Size’ (Forbes)
