Forget inflation, the real concern is earnings growth and recession

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Morgan Stanley with the note:

The fixation on inflation and the Fed continues, but markets appear to have moved past it and onto the real concern— earnings growth/recession. Rates and inflation may have peaked but we see that as a warning sign for profitability, a reality we believe is still underappreciated but can no longer be ignored.

Weaker inflation data is bullish for bonds but bearish for stocks

Last week, we got another weaker than expected inflation release on Tuesday which spurred a rally in bonds and stocks. However, that proved fleeting for stocks even as bonds held onto gains. This makes sense as markets contemplate what falling inflation means for growth and the equity risk premium. Finally, the technical reversal pattern on the back of the weaker CPI is the perfect book end to the rally that began in October.

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Earnings outlook deteriorating; we offer further comparisons to August 2008

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.