Has inflation peaked?
The consensus is that we can expect a «soft landing» in 2023 and that inflation will peak. The central banks have therefore signalled a slower pace of interest-rate hikes.
The US S&P 500 Index rose 5.6 per cent measured in USD in November, while the European Stoxx 600 Index increased all of 6.9 per cent measured in EUR. The Nordic VINX Index climbed 6.4 per cent measured in NOK. In Norway, the Oslo Stock Exchange rose 3.9 per cent.
The general view is that we can expect a global recession in 2023. This means an economic slowdown with a significant rise in unemployment, which is currently at record-low levels. We distinguish between a «soft» and «hard» landing. The former will result in a slight increase in unemployment, which will level off and remain at a low level. However, the latter means a sharp increase in unemployment. Expectations seem to be tilted towards a «soft landing», even though this has only happened a very few times and is difficult to achieve.
Less hawkish central banks
As the economic growth outlook has worsened, the US central bank (FED) has clearly signalled it will raise the base rate more slowly. This is also linked to the FED’s four 75-basis-point rate hikes in a row during the summer. The statements that we are moving towards slower increases were also a clear driver that helped to send the stock market higher. Signs that inflation has already peaked are another factor contributing to the central banks’ somewhat softer rhetoric.
So far, the total annual inflation rate in the USA has peaked at 9.1 per cent in June. In October, it dropped to 7.7 per cent, and core inflation has fallen over the past month. The reversal of pandemic-related effects, such as freight costs and supply chain issues, supports a further drop in inflation, as does the fall we have seen in energy prices. Nevertheless, it is not a given that we will return to the target of two per cent inflation . To achieve this, the central banks will probably have to slow the economy by so much that we get a weaker labour market in which wage growth also falls.
The road ahead
Less hawkish central banks and it becoming increasingly clear that interest rates are closer to peaking have clearly been positive drivers for the stock markets lately. At the same time, there is still uncertainty about the economy and how future earnings estimates will be affected. Given inflation-protected characteristics and the prospect of an interest-rate peak, shares still seem to be a good investment option for long-term savings.