Investors should prepare for more volatility because the outlook for October is bearish, said Real Money’s Bret Jensen.
Economic growth is not only slowing down, but the impact of inflation is more wide ranging, Jensen wrote in a recent Real Money Pro column. “Investors increasingly woke up to the fact that inflation is neither ‘temporary’ nor ‘transitionary,’” he wrote. “Economic growth forecasts were slashed during September as the global economy continues to be plagued by supply chain disruptions, surging prices and poor policy decisions.”
The market is also being influenced by the upward trend of interest rates. The 10-Year Treasury yield now is 1.5%. Thirty-year mortgage rates are back above 3%.
“This fully fits the Stagflation Lite theme I have been banging the drum on for months now,” Jensen wrote. “I expect interest rates to continue to move higher, which will hurt growth stocks as discount rates rise as well.” Value stocks will likely benefit as well as the stocks of banks due to improving net interest margins. Investors could also see energy stocks rally because crude oil and natural gas prices are expected to rise.
Still, overall, a rebound in the market in October is not likely, Jensen argues.
“It is hard to see much relief for investors in October -- a month that will be highlighted by increasing political risk on top of everything else the economy is dealing with,” he wrote. “There is the continuing debt-ceiling fight.”
The bottleneck of the two massive spending bills that are winding their way through Congress will also weigh on market sentiment. Investors should “buckle up for another tumultuous month,” Jensen wrote.