World Bank warns about stagflation
US stocks teetered as traders digested another profit warning from Target and a dire outlook from the World Bank. The story behind Target is not surprising to anyone as many retailers have been talking about persistent supply chain issues and as a shift in spending from goods to services. Target has an inventory problem and is leading everyone to believe that the rest of retail will have a margin problem.
Target cut their profit outlook and will struggle getting rid of unwanted inventory. Dampening the mood was the World Bank’s latest outlook that highlighted the risk of stagflation, with potentially harmful consequences for middle- and low-income economies alike.
With inflation this elevated, the Fed can’t change its reaction function. If we go a couple of months in a row of hearing corporate America talk about a weakening US consumer, that might be what is needed to make the Fed shift tightening to a lower gear.
Despite all the gloom that is out there, some investors are finding stocks attractive now as the US is not likely to enter into a recession this year or next. Traders might be pricing in a recession in the first quarter of 2024, but that means we can have a string of solid earnings seasons after inflation finally peaks at the end of summer.
Bitcoin is struggling here as the crypto space gets bombarded with lawsuits and fading interest. Money is shifting to exchanges and many crypto traders are still nervous about one last plunge. Binance is dealing with money laundering claims and the Winklevoss Twins have lawsuits over alleged failures of protecting customer assets.
Bitcoin’s correlation with equities could be breaking and that could lead to greater volatility over the short term. If Bitcoin falls below the USD 28,000 level, it could get ugly as prices might not see support until the USD 25,500 level.
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