US Stock Market: Are investors pricing in an economic slowdown but not a recession? – The Financial Express

Forex Market Stock Traders

First five months of 2022 turned out to be exactly what some of the investors expected. Stock market tanked with rising inflation being the leading factor for the downfall.

Rising inflation prompts the central bank to raise interest rates which in turn slows economic grwoth thus impacting corporate earnings. Faltering growth means a recessionary environment which could be more damaging to all stakeholders of the economy.

“Headwinds in terms of inflation, monetary tightening, rising interest rates, supply and labour issues, and the impact of the Ukraine war on commodity prices continued to weigh on US equities last month. Disappointing retail sales further dampened the sentiments. Walmart and Snap attributed their weak results to inflationary pressures. So, it underscores that inflation has hurt consumer sentiments, thereby eroding corporate profits,” says Kunal Sawhney, CEO of Kalkine Group.

Already the talk of recession is in the air even though economic data is sending mixed signals. What may appear is that the market may have priced in an economic slowdown but not a recession. Although, the scenario may change quicktime, with the inflow of more data in the coming months.

While some highly valued stocks especially in the tech sector saw the biggest fall, even other stocks and sectors were not left unscarred.

Coming out of a bear market may have its own share of volatility armed with sharp rallies on both sides. “ It is to be seen how the market absorbs the likely impact of the interest rate hikes the Federal Reserve has planned for this year. For now, the consensus view is of higher inflation and slower growth. It can become incredibly difficult to navigate when the market is in a bearish territory where the bottom is hard to predict, with the occasional burst of sharp bottom-up rallies,” adds Sawhney.

The latest headwind to face stock investors could be the runaway inflation and the potential impact of central-bank tightening aimed at controlling it. The US Fed has twice raised rates since March and signaled it will go for two additional 50 basis-point increases at its next meetings.

What also remains to be seen is how the market absorbs the likely impact of the interest rate hikes the Federal Reserve has planned for this year. For now, the consensus view is of higher inflation and slower growth.

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