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Stocks began their slide following comments from Fed Chairman Jerome Powell, who was speaking at a Wall Street Journal event. “Today we’re still a long way from our goals of maximum employment and inflation averaging 2% over time,” Powell said. The Fed chief added that the recent surge in bond yields “was something that was notable and caught my attention.” The 'wait and see' message sent bond yields north and stocks south, underscoring the fact that investors anticipate more robust growth and higher inflation coming out of the pandemic.
"The trend is toward much higher inflation than markets were anticipating even late last year. Of course, experts have been warning for years of a looming price spiral that hasn't materialized. But that doesn't mean it can't happen. Prices running hot at over 3% would begin to spell danger for stocks, and anything from 4% to 5% would prove an absolute disaster. 'History demonstrates that a high and volatile inflation regime is associated with very low price/earnings multiples,' says Chris Brightman, chief investment officer at Research Affiliates. 'High inflation is an unambiguous negative for stock prices.' Fast-rising prices would force the Fed to throttle the economic engine by raising rates, a move that would hammer corporate profits."
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