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 growing sense of worry that financial markets have become too optimistic.
The shift in narrative was evident across assets on Monday. S&P 500 futures lost 1% and small-caps took a beating. In Europe, the main stock benchmark sank more than 2% with the most severe losses in energy, banks and travel companies. Treasuries rallied, with the 10-year yield sliding to 1.23%.
“Peak growth is starting to become a more concerning element,” Frank Benzimra, head of Asia equity strategy at Societe Generale SA, said on Bloomberg Television. “This is actually one of the elements which has pushed us to reduce the allocation into risk assets in our global allocation. You have inflation, but you have also this growth element.”