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Calendar Stock Photo – The hope is that the Fed doesn’t trigger a recession by raising rates too aggressively. But if the economy turns into a no-landing, that means growth won’t really cool off, rather strong or soft rate hikes will take their toll.

“There’s no reason for the stock market to go higher from here,” said John Norris, managing director at Oakworth Capital, adding that investors don’t know when the Fed will pause. He predicted the Fed may be forced to hike. rates to 6% if inflation doesn’t slow down soon.

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“Even if the economy avoids recession, 2023 will be a difficult year for corporate earnings,” David Kelly, chief global strategist at JPMorgan Asset Management, said in a report Monday. “If there’s a recession, revenue will drop dramatically.”

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Bracing For Higher Rates And Slower Earnings Growth

Of course, it’s only February. But the Dow Jones is down almost 1% so far this year. In mid-January, the average price of 30 blue chips rose nearly 4% in 2023. As investors realize this, reality sets in.

If the Fed continues to tighten, stocks are unlikely to rise. In an environment where high interest rates eat away at earnings, it is harder for the market to justify a higher valuation. A month ago, the market was estimating a 15% chance, the central bank could take a break and leave rates at 4.5% to 4.75%.

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But inflation concerns are once again so widespread that investors are now even betting on a rate of around 25%, with the Fed raising rates by a half percentage point instead of another quarter point next month.

“The era of expanding central bank balance sheets and ultra-easy monetary policy is over, leaving a global investment landscape almost unrecognizable.” Principal Asset Management’s head of global strategy, Seema Shah, said in a report on Monday.

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