Inflation is 'much more persistent' than anticipated: Strategist
Kathryn Kaminski, AlphaSimplex Portfolio Manager and Chief Research Strategist, discusses inflation and its affect on the stock market, as tech shares recover some losses from Monday sell-off.
Video transcript
- Joining us now is AlphaSimplex Portfolio Manager and Chief Research Strategist Katie Kaminski. And this is all ahead of Yahoo Finance's All Markets Summit presented by Northern Trust on October 25. Katie, thank you for joining us today.
We had a really nasty day yesterday. The headline news was around the mega caps sinking, especially Facebook, but a nice rebound today. And the big question on investor minds, is the worst over here?
KATHRYN KAMINSKI: Unfortunately, I have to say the big theme that we've seen has to do with how inflation is going to change the markets. And today may be a day of respite, a day where we're sort of seeing a little bit of recovery from what could be future themes, but I think the key theme is that inflation is much more persistent than we had anticipated and than the Fed had anticipated. And you can take today as an example. Oil markets are still up while we're seeing some recovery in equities. So I think we may see a bounce back, but we're definitely going to have to figure out how this inflation narrative continues before we know where the end is of this turbulence.
- If that is in fact the reality here, Katie, I mean, to what extent do you think the market's woken up to that? If you look at where things have moved, is that inflation risk that you see, has that actually been baked in?
KATHRYN KAMINSKI: Some of it may have been baked in, but I think people are much more complacent than they would like to be about these things and we are a commodity. We're active in the commodity markets and we've been talking about it since last year. And if you just start looking at some of the raw material prices and you start thinking about the sort of take on the additional effects of those, we're in for an interesting winter.
I mean, even more surprisingly with this type of clampdown and you know and energy prices being such a challenge. We're going into a winter season with challenge before we begin. So I think we're more nervous about where the turbulence may be and that people may be still complacent to the effects of that inflation move.
- Well Katie, I want to talk to you about the bond market. I was going through your notes and lots of talk over the years calling for an end to the bull in-- end to the bull in the bond market. And I have on my screen the WiFi interactive, if we can bring this up, a chart going back to 1985 of the 10-year T-Note yield.
So this moves inversely to the bond prices. And we can see the trend has definitely been down here. Is this going to be something that has legs? Are we going to break out of this trend? Are we really-- Have we really found the bottom this time?
KATHRYN KAMINSKI: This is a good question. We've been looking for the bottom of this trend for decades.
- Me too.
KATHRYN KAMINSKI: And what's interesting about this-- Yeah, we've all been looking for it. But I really think that we need a stimulus, an impetus, something to change things.
And having inflation as one of the only things that may actually cause the Fed and other central bankers to move in and actually consider tapering, actually consider raising rates. And that may be the only thing that might have actually caused us to change directions in what has been a very, very long run for bonds. But it's going to be bumpy, because we haven't dealt with this type of move or higher rates in quite a long time. We're pretty used to them being low and comfortable, so.
- And Katie, you talked about the inflation risk. I know you're watching the commodity space closely too. I'm looking at where oil is trading today. WTI inching towards that $80 a barrel mark, Brent Crude well above that too. The concerns about oil surging ahead, the energy crunch globally, how much of that is likely to lead to prices moving closer to that $100 mark?
KATHRYN KAMINSKI: I think it's definitely something to watch very closely because if you look at the prices now, they haven't been this high since 2014. And if you start to watch the news, you start to see the carry on effects of those high energy prices. You see shutdowns of factories, you see sort of ramifications for the squeeze on energy prices, which is often a fixed cost for many businesses. And I think that's why people are concerned. They're concerned that if we can't slow this down, and given that supply has not been-- That OPEC did not decide to increase supply, this is going to continue over the next few months and it will definitely have an impact on a lot of things, a lot of businesses out there.
- Katie Kaminski, it's good to talk to you today. AlphaSimplex Portfolio Manager and Chief Research Strategist.
