Risks of an overheating US economy
The US economy and corporate profits have been strong. It’s times like these that investors should start to worry about monetary policy tightening killing the bull market. This infographic will help explain why.
The countdown to a US recession has started
But is in danger of overheating
Long-term market indicators signal a recession 12-24 months away
Inflation is nearing a tipping point
US Federal Reserve (Fed) indicators point to rising inflation ahead
Source: NY Fed Reserve, Bloomberg
Monetary policy needs to continue responding
Central banks acting pre-emptively to contain inflationary risk
US Fed containing pressure by:
Selling assets from
Absorbing fiscal stimulus from Trump’s tax cuts also means the central bank will need to raise rates much more quickly
But tighter monetary policy raises risk of recession
Even if this market cycle doesn’t end with a bang just yet, risks are rising
US valuations are expensive, suggesting returns over next 10 years will be weak
Valuations are the most important driver of long run market returns
Time to preserve capital, not chase returns
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