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Historically, periods of slow growth and inflation haven’t been kind to stock and bond investors
Thursday 20 Jan 2022 Author: Martin Gamble

Index heavyweight bank JP Morgan kicked off the US quarterly reporting season on 14 January and managed to beat analysts’ estimates for revenue and profit, but the shares fell 5% on the day.

Part of the reason was that going into the results, bank shares had already clocked-up big gains amidst a sharp rotation into value shares at the expense of growth.

This reflected substantial increases in US 10-year bond
yields as markets started to price in earlier and more aggressive rate hikes by the Federal Reserve to counter rising inflation fears. Rising interest rates are positive for bank’s interest margins.

The fall in JP Morgan’s shares related to rising personnel costs.

The Fed has consistently highlighted the risk of wage inflation becoming entrenched which has the potential to drive future inflation expectations in an escalating upward spiral.

Bank of America outlines believes 2022 will be marked by a ‘rates shock’ as the Fed fights rising inflation.

The bank prefers deep value sectors like energy, oil and real assets which offer inflation protection as well as defensives and high-quality shares.

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