Stock Market At Critical Level: This Month Brace for Impact

• The Fed’s “relentless” efforts to slow down the economy will “inevitably” hurt earnings and push stocks to a new multi-year low, says Principal Asset Management’s Seema Shah, who is telling investors to brace for increased volatility since it’s become increasingly clear this year that the Fed is not yet finished with its rate hikes.

SURPRISING FACT

After a "particularly tough" year for stocks and a Fed-induced global bond market selloff, yields on the ten-year Treasury are now more than twice the S&P’s estimated dividend yield—bad news for stocks but an opportunity for investors looking to lock in income with a less volatile asset, says Shah.

TANGENT

Texas factory activity fell in February for the first time since May 2020, according to the Dallas Fed’s manufacturing survey released Monday. “February has been a slow month—it is hard to know why, but our outlook has worsened for both our business and retail activity in general,” one respondent said, while another posited, “We are not sure if it’s the Fed jacking with interest rates or some sort of cyclical slowdown, but it feels like business has ground to a halt.”

KEY BACKGROUND

After hitting a near two-year low in October, stocks rallied as signs that inflation was slowing started to abound, but this month has shown the journey to normal price levels may be much longer than many hope. On Friday, the Commerce Department reported the prices consumers paid for goods and services last month edged up 5.4% from a year ago—up from 5.3% one month prior despite expectations calling for a decline. Though it’s unclear when the Fed will stop raising rates, analysts at Goldman and Bank of America added another rate hike to their forecasts following another hotter-than-expected inflation reading earlier this month. They now expect the central bank will raise rates to a top level of 5.5%, potentially hitting the highest level in more than 20 years.