by David Picton and Team, Picton Mahoney Asset Management
Highlights
• Likely at maximum policy stimulus and economic acceleration in the U.S.
• China: First to recover, first to slow
• Mid-cycle correction is a growing possibility, but cycle has legs
• Sustainable gains in productivity
• The Fed should be "talking taper" at this point
• Stocks appear more vulnerable to correction
• Inflation data to remain elevated and ignored. But when does it start to matter?
Peak stimulus and economic acceleration in the U.S. could soon give way to decelerating metrics in the coming quarters. From monetary and fiscal stimulus to economic growth rates and investor sentiment, many metrics are likely “as good as it gets.” China’s recovery is already decelerating — a harbinger of what will happen in the U.S. The likelihood of some sort of corrective action in risk assets has increased, especially as investors start to worry about the potential for tightening monetary policy conditions. Pullbacks will likely be shallow, however; there is a long runway to economic growth, given the backdrop of generally stimulative conditions, significant pent-up demand and low interest rates around the world. In a few quarters, when base effects normalize, we believe inflation will be a key risk factor to monitor.
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