Beaumont: The Inflation Threat In 7 Charts

The BCM investment team put this together. Enjoy!

Inflation anxiety is back and making its presence felt in the markets. Market-based inflation expectations have hit their highest level in over 10 years—despite the ~17 million Americans still out of work—and the markets are responding.

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The Nasdaq briefly fell into correction territory and turned negative on the year, and the rotation to cyclicals has rolled on. And last year’s leaders aren’t the only ones losing “momentum."

Meanwhile, the bond market is also grappling with climbing inflation expectations as U.S. Treasury supply far outpaces demand. And how has risk changed in the Bloomberg Aggregate Bond Index? 

1. After a few days off, the inflation hawks are back and they are causing global stock jitters, especially in the high-flying growth stocks…

Source: The Daily Shot, from 3/4/21

2. No investment goes up forever.

If history is our guide, we are in for some volatility as the markets digest their spectacular 2020 recovery and gains. 2021 is now flat on the year for the major U.S. averages…

Source: The Daily Shot, from 3/5/21

3. The momentum factor has certainly lost its own momentum:

Source: The Daily Shot, from 3/4/21

4. Perhaps this will help the momentum issues as many of the large tech companies have high cash flows and can purchase large amounts of their stock…

Source: The Daily Shot, from 3/4/21

5. Demand for bonds is struggling to keep up with all of the supply.

While central banks have been the buyer of last resort, there is so much debt that even they are straining to keep up. To entice the incremental buyer, yields must rise (and prices fall)…

Source: The Daily Shot, from 3/4/21

6. The composition of the Bloomberg Aggregate Bond Index, reflecting many of the bond market changes, has extended duration and lowered its average credit rating. It is much riskier than 10 years ago!

Source: The Daily Shot, from 3/5/21

7. The Covid factor at work: ~17 million Americans are still out of work due to the pandemic.

These people need the stimulus, so why does Washington want to give it to non-affected Americans and not help the affected people enough?

Source: Oxford Economics/ Haver Analytics, from 3/5/21



8. Deficit spending must be paid back the future. Just what are the boomers saddling future generations with?


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