Kyle Bass, founder and chief investment officer of Hayman Capital Management, says he does not expect stock-market gains in the year 2022 if the Federal Reserve sticks to its guns on rate hikes and tightening overall financial conditions.
Bass said during an interview with CNBC on Thursday that the stock market probably goes down pretty aggressively if they stick to that plan, as there is no way the stock market goes up this year with interest rates concurrently with quantitative tightening. The hedge-fund manager said that they are going to have to back away from that plan once they start hiking.
Bass s comment came as the Dow Jones Industrial Average DJIA, the S&P 500 index SPX and the Nasdaq Composite Index COMP came under pressure, and the 10 year Treasury note TMUBMUSD 10 Y drew bids that drove the benchmark bond yield, which used to price everything from mortgages to car loans, fell lower on the day and week.
On Thursday, a reading of wholesale inflation, the producer-price index, receded but still held around 9.7% year-over-year, compared to a nearly 40 year high of 9.8% in the previous month. The consumer-price index for December showed the headline year-over-year inflation rate was close to a 40 year high of 7%, according to the PPI report.
Even though recent data suggests pricing pressures may be peaking, the Federal Reserve is in need of tighter financial conditions to fight inflation, because of the moves in inflation.
In the year 2022, Deutsche Bank DB economists expect four hikes starting in March, while Goldman Sachs Group Inc. economists said there would be four rate increases in 2022, from three.
Fed Gov. spoke to a Senate finance committee during the confirmation hearing. Lael Brainard said that the Federal Open Market Committee has projected several hikes over the course of the year. Lael Brainard says that Inflation is Too High. A liftoff in benchmark interest rates will occur after the Fed ends its tapering of asset purchases and may come as it shrinks its $9 trillion asset portfolio, which it had accumulated in support of the market during the height of the Pandemic-induced disruptions that began in March of 2020.
As soon as asset purchases are completed, we will be in a position to do that. She told the Senate Banking Committee on Thursday that we will have to see what the data requires over the course of the year.
It is expected that the higher rates will lead to a higher borrowing costs and can erode the future earnings of companies, such as those in technology, which are expected to be a negative for swaths of speculative assets.
Why is the dollar falling? Markets are in wonderland over inflation and the Fed.
Bass believes that the market is facing significant challenges and doubts that the central bank will have the conviction to raise rates without any push back from the markets.
Bass is known as an often-bearish hedge-fund manager who won big during the global financial crisis, and has also focused on economic developments in Asian markets.