Medicare Agent News: The Experts Were All Wrong

Monday, February 27, 2023

The Experts Were All Wrong

By Nicholas Jasinski Monday, February 27

Failed Bounce. Stocks opened strong today, setting the stage for a rebound from last week's losses. But the rally faded as the day progressed while bond yields continued their relentless rise.

The S&P 500 closed up 0.3% after having been up 1.2% at its morning highs. The Dow Jones Industrial Average eked out a rise of 0.2% and the Nasdaq Composite added 0.6%.

The yield on the benchmark 10-year U.S. Treasury note has held above 4.9% for several days, up 0.55 percentage point since late January. The 1-year Treasury bill yields a meaty 5.1%.

Those yields have climbed as investors and traders priced in a higher peak in the fed-funds rate in 2023 and lower odds of cuts in the second half of the year. The changing forecast is a reaction to recent strong data on the consumer economy and higher-than-forecast inflation readings.

A stronger economy now could just mean more Fed tightening and a harder fall into recession later. It's a conundrum I wrote about in the latest issue of Barron's:

It’s a dynamic that Truist Advisory Services Co-Chief Investment Officer Keith Lerner calls the “reverse Tepper trade,” referring to a bullish prediction made by hedge fund manager David Tepper in 2010 that the economy would improve or the Fed would ease, boosting the market either way.

Today, the choice is between a weaker economy that brings down inflation but also hits corporate profits, dragging down asset prices, or a stronger economy that forces the Fed to tighten even more to tame inflation, also dragging down asset prices.

Futures pricing on interest-rates now implies roughly one-in-four odds that the Federal Reserve's policy committee will increase the fed-funds rate by half a percentage point at the end of March (after its quarter point hike in February). Those half-point odds were zero a month ago, before the January jobs report surprise and other data.

Economists, the market, the Fed, consumers, and businesses are all still struggling to figure out the outlook for the U.S. economy. This time last year, there were widespread calls for a recession to have happened by now. Instead, the economy appears to be reaccelerating, potentially making inflationary pressures worse. More on that below.