Markets “lack any sense at all,” and that won’t change until the inflation situation changes, according to Wells Fargo. Gains from the recent rally may be wiped out, as previous rallies have also failed this year. Inflation in September clocked in at 8.2%, still hovering near 40-year highs. Loading Something is loading.
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Markets these days “lack any sense at all,” and that won’t change until the inflation picture becomes clearer, Wells Fargo said in a note Thursday.
The bank pointed to the recent volatility in the stock market, which has rebounded on positive earnings reports after plunging earlier this month when inflation clocked in above expectations. Those swings have Wall Street divided over the what the future holds, with some bulls calling for a 37% rally by year-end, and others ringing alarms for an imminent financial disaster.
“Investors are trying to make sense of the financial markets, which at times, seem to lack any sense at all,” global market strategist Scott Wren said in a note on Wednesday. “We feel this pattern of market behavior is unlikely to change in near term and is not uncommon during periods of economic uncertainty.”
Wren noted that markets have largely been pressured this year by inflation, and suggested that volatility wouldn’t begin to ebb until uncertainties around rising prices are ironed out. He also warned that recent rallies in the stock market could soon be erased, as other rallies this year have failed to sustain themselves in the face of shifting economic data.
“Market participants have been looking at every meaningful economic report through the lens of inflation. Uncertainty over how high inflation will go and how long it will stay there has been the main driver,” Wren added.
Prices hit a 41-year high in June, prompting the Fed to issue three jumbo 75 basis point rate hikes so far this year. But still, core inflation is still rising, and conditions in the labor market have barely started to cool. That’s a sign rates will likely stay higher for longer – promising more choppiness to the market until inflation shows clear signs of slowing.
In the meantime, economic reports will be in charge of the market’s direction, with another big move likely to come at the central bank’s next Federal Open Markets Committee meeting on November 1-2, when officials are expected to deliver another 75 basis point rate hike. October inflation data will be released the following week on November 10, making another bout of volatility likely.