Inflation Sends the Market a Message: Sell It All

The kneejerk reaction to hotter-than-expected core consumer price inflation in December?

Sell bonds… and stocks.

If nothing else, it’s a reminder that the “Goldilocks” regime in which the economy is “just right,” with low inflation amid a global synchronized expansion lifting earnings and asset prices, won’t last forever. Good news could become bad news if investors perceive that the Federal Reserve will be forced to raise interest rates aggressively to combat inflation and snuff out this expansion, or if rising longer-term yields are reflected in the rate used to discount companies’ future earnings and crimp equity valuations.
Source: Bloomberg