The Inflation Monster 👾

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The Inflation Monster

It’s been a little over a year since the pandemic flipped the world upside down. Hospitalizations and fatalities have decreased across the U.S, and investors are starting to change priorities as most health professionals predict a return to a more normal life by the summer and into the fall.

Respondents to a Bank of America survey said the economy faces more significant threats than the virus for the first time since the pandemic began. While it’s hard to imagine greater threats to our economy than the virus, investors say the market faces bigger problems.

A survey conducted by Bank of America revealed investors think inflation could cause significant damage to the economy. The Bank of America Fund Manager Survey was conducted from March 5 -11, and 220 investors with over $600 billion in assets under management participated.

The survey revealed 37% of respondents saw inflation as the biggest threat, followed by 35% worried about sudden movements in the bond markets if the Federal Reserve abruptly stopped its monthly asset purchases. Only 15% of respondents viewed the virus and issues with the vaccine rollout as the biggest threat to the economy, marking the first-time virus-related fears didn’t top the survey since last February.

As government bond yields have risen to pre-pandemic levels, inflation has become a significant concern this year. According to survey respondents, a change to the 2% level in the 10-year Treasury note may trigger a stock market correction, a decline of 10% or more. And if it moved to 2.5%, bonds would be more appealing than equities. Tuesday morning, the benchmark note was trading at about 1.6%.

I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.

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