The NEI team examines what drove markets through November, including easing supply chain pressures, slowing global growth, the inverted yield curve and why current market prices may still be too optimistic.
Price pressure eases but wage inflation remains high
Price pressures are easing as tighter monetary policy is starting to curb excess demand and easing supply chains are lowering costs for materials and freight. Wages have declined in real terms but are increasing in nominal terms. As a result, core inflation may remain higher for longer, even as headline inflation begins to moderate.
Recession risk looms
Recent data shows the global economy is weakening with both manufacturing and services slowing as business and consumer confidence hit their lowest point in two years. The spread between the 10-year US Treasury yield and the 2-year yield, points to the possibility of a looming recession in the US.
Market prices not reflecting recessionary concerns
Despite earning estimates being revised downward since the summer, markets may still not be fully pricing in the impact lower demand and higher costs will have on corporate profit margins. Earnings estimates may have to be revised further downwards as current market pricing may still be too optimistic if a recession is on the horizon.
