“Moral hazard and a ‘can’t-lose’ attitude from investors only raise the risk of a larger fragility shock before year end,” the strategists wrote in a client note Tuesday. “Adding further uncertainty to the outlook is the looming Fed taper and general hawkish turn away from the measures prompted by the Covid shock.”
The strategists joined their counterparts at Morgan Stanley in urging investors to remain vigilant after last week, when the S&P 500 reversed losses to snap two weeks of declines.
Stocks are down for a second day Tuesday, with tech shares leading the decline amid a spike in Treasury yields. The S&P 500 has lost 3.7% in September, putting it on course for its worst month in exactly a year.
On Friday I discussed the overly comfortable view that potential problems are so large that outsized liquidity injections are inevitable, so there is no need to sell. Inflation and rising yields punctured that fallacy today. The 5-year yield broke about the psychological 1% level and reintroduced the prospect of debt servicing costs and stagflation to the financial community.Click HERE to subscribe to Fuller Treacy Money Back to top