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Seven Rate Hikes and a Big Stumble - Mish Talk

I am doing this in a guest post format, without blockquotes. You can download the entire article here as a Seven Steps and a Stumble[1] PDF. I post major excerpts below, but not the entire article.

The MSCI All-Country World Equity Index has been stuck in a tight range since January of this year (Chart 1), but it now seems as if it is suspended on the brink of a sharp fall. With the Fed having already delivered seven rate hikes since January 2016, the central bank has become even more hawkish at a time of escalating trade tensions between the U.S. and its trading partners. The risk of policy overkill is escalating, and, as such we are downgrading global stocks and moving to overweight bonds versus equities.

I don’t expect a recession in the U.S. economy, but downward pressure on equities will likely be sustained unless or until the Fed backs away from its hawkish stance and/or the White House eases its harsh rhetoric. Both may happen in the third or fourth quarter when the U.S. economy softens, inflation calms down or the mid-term elections are over. Until then, bonds are a better bet than stocks....

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