28 Nov Viewpoints December 2021
TRIPWIRES
Inflation remains top of mind for investors, but we don’t think the analysis goes deep enough. Objectively, the current rate of U.S. consumer price inflation (5.4% year over-year) is worryingly high. However, we think there is too much focus on the current level and not enough on the effects of high inflation. We think the two biggest risks of higher inflation are pressures on corporate profitability and the impact on interest rates. As shown below, neither are flashing warning signs so far. Corporate profits have surged as pricing power (and operating leverage) have allowed companies to more than recoup higher costs. Additionally, the long-end of the yield curve (as measured by the 10-year Treasury) recently peaked at 1.7% and has dropped below 1.5%. So what are the tripwires that we are monitoring that could upend this positive picture? Read the full Viewpoints December 2021 newsletter.
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