As the markets remain persistently volatile, Bloomberg TV recently spoke with Axonic Capital Director of Research Peter Cecchini for insight on whether these large market movements should be reason for concern among investors or if it is a normal occurrence throughout the history of the market.
“The analog we have been discussing since late last year is a hybrid analog between the 1970s and 2018,” says Cecchini. “In 2018, we had a market selloff categorized mostly by quantitative tightening. The 1970s saw similar margin dynamics to what we are seeing now.”
However, Cecchini explains that he thinks the situation the markets are in now differs from anything investors have experienced in the past. “The biggest point here is we’ve seen the end of a forty-plus secular downtrend in interest rates. Clearly, inflation has forced the Fed into an almost unwinnable situation where it has to hike,” he says.
Unfortunately, Cecchini also believes that we are just seeing the beginning of the effects higher inflation will have on the markets. “I think this is just the beginning,” he explains. “I think we are seeing it in earnings reports this quarter. Frankly, if you look closely enough at small-caps, close to the end of last year, we saw it begin then. I think it’s going to accelerate into the middle of the year.”
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