Inflation is running red-hot. The annual inflation rate in the United States for the 12 months ending November 2021 was 6.8% - the highest reading in 40 years. Around the world, the inflation situation is similarly grim. Core inflation in the U.K. just hit its highest level since 1992, Canada is seeing multidecade highs and eurozone inflation just hit an all-time record. As I've been saying for months, this inflation is not transitory and it means one thing... Interest rates have to rise, potentially in a major way. The last time inflation was this high in the United States, the rate on the U.S. 10-year Treasury was 9%, as compared with the minuscule 1.5% that we see today. We're looking at the biggest disconnect between inflation and interest rate policy in recorded history. If inflation doesn't slow quickly (and there's no reason to believe it will), interest rates will go up. Those rising rates will mean tough sledding for the S&P 500, which is currently dominated by megacap technology companies. For the past five years, the biggest drivers of the S&P 500 have been the big technology companies - Microsoft (Nasdaq: MSFT), Apple (Nasdaq: AAPL), Amazon (Nasdaq: AMZN), Alphabet (Nasdaq: GOOGL) and Meta (Nasdaq: FB) - and now Tesla (Nasdaq: TSLA) too. Together, these six companies make up an incredible 25% of the entire S&P 500. With this kind of top-heavy concentration, these stocks are going to determine how well the S&P 500 performs. That worries me as we head into what could become an enduring, and perhaps dramatic, rise in interest rates. | 
No comments:
Post a Comment