Resetting macro expectations

There are lots of hot takes about what to expect in the economy at the moment. The US stock market just fell again – down 9% this month.

If we look at the trend over the past 4-5 months, there’s been a fair bit of volatility. All of this is a result of speculation around inflation and the impact of rising interest rates.

I keep going back to 3 simple charts. The first is that inflation is high – very high – in many of the world’s largest economies.

The second is that inflation greater than 5% takes 10 years on average to return to 2%.

And the third is another Bridgewater chart that shows that the equity market only hits the bottom a bit AFTER we hit peak interest rates. This means markets consistently fail to consider second order impacts.

I don’t think we’re close to hitting peak interest rates as things stand. We’ve probably got at least 1 or 2 major hikes coming in the next few months.

TLDR – I expected we’re in for a lot more volatility in the next year. There’s no easy path out of this.