Investment strategists are starting to consider a new bearish scenario: the economy has already hit its speed limit.
With the ferocious spread of Covid-19’s delta variant and central banks already talking about tighter monetary policy to bring inflation under control, there’s a sense of worry that financial markets have become too optimistic.
The shift in narrative was evident across assets on Monday: the S&P 500 sank the most since May and benchmark Treasury yields tumbled to the lowest level since February. Stocks slipped again in Asia Tuesday but the fall was orderly. U.S. equity futures rose and Treasuries trimmed their climb, signaling some calm after yesterday’s volatility.
“The recent weakness is justified on a short-term basis,” Jim McDonald, Northern Trust Bank chief investment strategist, said on Bloomberg Television. “If you look at the issue with the delta variant and Covid, it is a short-term concern, but if you look out to the end of the year most of the Western economies will have immunity in the 75% to 80% range.”