Wall Street's stock pickers may have to sweat a bit to make their clients happy. Some stocks will win and others will lose. In this scenario, the stock market gets choppy. There is pain in some pockets of the economy and inflation remains a concern - but there's no immediate crisis that forces the Fed to reverse course. Consumers keep pulling their weight, and we don't have a recession. In this scenario, growth persists, albeit at a slower rate.
"For that to happen we'd have to have a crisis, and I don't see that."Ĭonsider instead what the world would look like if higher rates don't break the US economy but just bend it into a different shape.
"I think one of the great mispricings of the markets right now is the idea that we're going to cut rates by the end of the year," Justin Simon, the managing director of the hedge fund Jasper Capital, told me. There's only one problem with Wall Street's story: It's completely backward. After a few months of turmoil, the market will settle back into the low-interest-rate environment that defined the pre-pandemic decade and stocks will be on cruise control once more.
This will, in turn, usher in a recession that forces the Fed to reverse course and cut rates to juice the economy again. Wall Street has even concocted a fairly convincing story for how the market will get back to this state: The Federal Reserve's rapid interest-rate hikes will cause the financial system to seize up, they will blow holes in the real-estate sector, and layoffs - which have already hit industries like tech and media pretty hard - will spread across the economy. In that environment, any idiot - or anyone on Wall Street - could buy almost any asset, sit back, and watch its value increase. You know, like during the pandemic, when interest rates were at zero, the government was mailing checks everywhere, and it seemed everyone had so much real money, they were using it to buy fake money. Wall Street desperately wants the stock market to go back to the good ol' days. Paid non-client promotion: In some cases, we receive a commission from our partners.
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