Nobody is worried about COVID anymore.
Well, I shouldn’t say “nobody.” People dying from it in the ICU are worried. Anyone who’s lost a friend or a loved one to it is vexed. And the Chinese leadership is palpably concerned.
But when it comes to COVID’s potential to adversely impact markets, the 374 panelists who participated in the January vintage of BofA’s closely-followed Global Fund Manager survey aren’t particularly bothered by the malady. Together, they control $1.2 trillion in AUM (or, if you like, “a number Joe Manchin would accept for Joe Biden’s defunct social spending plan”).
A COVID resurgence barely registered on the survey’s “tail risks” list this month, claiming a meager 6% (figure below), down markedly from December.
By contrast, hawkish central banks commanded nearly half of the vote, followed by inflation.
If you conceptualize of those two risks (policy hawks and inflation) as effectively representing the same concern, you’re left with two thirds of investors losing more sleep over rate hike expectations and the price pressures that gave rise to them, than the deadly plague which, through Wednesday, had claimed nearly 5.6 million lives globally.
Notably, January marked the eleventh consecutive month that some manifestation of “inflation” or “bond tantrum” occupied the top spot. COVID’s reign atop the tail risk list ended a year ago.
Apparently, there’s some cognitive dissonance afoot, though. Despite the hand-wringing over rising prices, survey participants plainly believe inflation crescendoed late last year. A net 48% expect CPI to move lower, the most since February of 2009 (figure on the left, below).
At the same time, investors raised their expectations for Fed hikes in 2022 to three from two in December. That, in turn, helped push yield curve expectations to the lowest since December of 2018, the last time Jerome Powell was busy hiking rates and letting the balance sheet run down simultaneously.
It was notable that “global growth scare” now shows up on the tail risks list. That speaks to nascent worries about the prospect of rate hikes pushing economies into recession.
Finally (and through it all), opinions on “transitory” haven’t changed despite Powell’s formal abandonment of that most maligned of all adjectives.
Just 36% of BofA survey participants said inflation was “permanent,” essentially unchanged from December. The percentage who said it was “transitory” actually ticked higher this month, albeit just slightly.
I should note that all of this is actually the same concern. Were it not for the pandemic, we wouldn’t be fretting over rampant inflation or aggressively hawkish central banks. Viewed through that lens, everyone is still worried about COVID.
H-Man, “cognitive dissonance” forces “back to the dictionary”. Ying and Yang rolled into one for the best outcome. It looks bad near term
I wonder what the results will be like now, after the January swoon we’ve had so far.
In my experience people aren’t worried really is people are just giving up. We are at the peak of new infections in the United States for the entire pandemic right now and everyone wants to throw in the towel. The reality is, even with the Fed turning hawkish if the crap jobs nobody wants to work remain dangerous then nobody will still work them. That will continue to drive inflation. Essentially we’re finding out right now what happens when the service workers in a service economy stop showing up. It’s definitely going to expedite our move into an information economy. But in the meantime I don’t think anyone has an answer for what to do when nobody is willing to die for the sake of the economy.
And all of this is really an American problem because our right wing politics decided to politicize a pandemic and lie to everyone about what it really is and how to handle it. Thanks Facebook, Reddit, Twitter, Fox News, OAN, the GOP, and former president Trump! You all really effed this up.
I like your concluding paragraph.
Covid has caused a lumpiness to exist not only on the demand side of the economy (eg- fiscal largesse caused a rapid increase in demand for certain products while causing a massive drop off in services) but also on the supply side of the economy- as a surge in orders for certain products could not be satisfied due to the fact that factories and delivery chains were not set up, even pre-covid, to handle surges. This combined with covid caused problems at the factories/delivery systems (sick workers, factory shutdowns, massive shortages of truck drivers) has/is still wreaking havoc. These systems are anticipated to be log jammed into 2023.
It is kind of like covid was an earthquake and we are still suffering through aftershocks. We have to wait until the aftershocks stop occurring until we can see what the new landscape looks like- then we can carry on in earnest. I am focusing on what everything might look like after the last of the covid aftershocks occur… Close to what pre-covid looked like- however, with a few exceptions- such as work from home is here to stay- among a list of other permanent shifts.