Kyle Bass, founder and chief investment officer at Heyman Capital Management, says stock-market gains are not expected in 2022 if the Federal Reserve hikes rates and tightens overall financial conditions.
Bass said during an interview with CNBC late Thursday, “With interest rates as well as quantitative tightening, there’s no way the stock market this year, it probably goes down very aggressively, if they do that.” Stick to the plan.” “I think once they start hiking, they’re going to have to back off that plan,” the hedge-fund manager said.
Bass’s comment comes as the Dow Jones Industrial Average DJIA,
s&p 500 index spx,
and Nasdaq Composite Index Comp,
came under pressure, and the 10-year Treasury note TMUBMUSD10Y,
Bids taken out to drive benchmark bond yields, from mortgages to car loans, are used to lower prices day and week.
On Thursday, wholesale inflation, a reading of the producer-price index, eased but still remained at around 9.7% year-on-year, compared to a nearly 40-year high of 9.8% in the previous month. The PPI’s report comes a day after the December consumer-price index headline showed the year-on-year inflation rate also neared a 40-year high of 7%.
Inflationary moves, even though recent data suggest pricing pressure may be peaking, is forcing the Federal Reserve to sharply tighten financial conditions to reduce the build-up of inflation.
Deutsche Bank DB economists expect four hikes in 2022 starting in March, while Goldman Sachs Group Inc. GS economists have forecast a rate hike of three to four by 2022.
During a confirmation hearing before the Senate Finance Panel, Fed Governor Lyle Brainard said the rate-setting Federal Open Market Committee has “forecast several increases during the year.”
Lyle Brainard says inflation is ‘too high’. The Fed Will Work To Bring It Down
A liftoff in benchmark interest rates will come after the Fed ends its tapering of asset purchases and could come as it shrinks its nearly $9 trillion asset portfolio, which is expected to support markets during the height of the pandemic-induced disruptions. had accumulated. Back in earnest in March 2020.
“As soon as the asset purchase ends, we will be in a position to do that. And we just have to see what data is needed over the course of the year,” she told the Senate Banking Committee on Thursday.
All this is expected to act as a headwind for speculative asset swaps as higher rates translate into higher borrowing costs and can erode the future earnings of companies, such as those in technology.
Why a falling dollar signals inflation and ‘markets are in wonderland’ on the Fed
For his part, Bass sees the market facing significant challenges and doubts that the central bank will have the conviction to raise rates substantially without backing out of the markets.
Bass is widely referred to as the often bearish hedge-fund manager who won big during the global financial crisis, and who has also focused on economic growth. in Asian markets,