Christopher Wood, global head of equity strategy at Jefferies in his weekly note to investors, GREED & fear warned investors for the biggest inflation scare since the 1980s.
“For now investors should be prepared for the biggest inflation scare since the early 1980s, and wait to see how the (US) Fed reacts. In the meantime, Treasury bonds are likely to sell off more, and cyclical stocks rally more, before any such tapering scare,” Wood said.
That said, he believes that if inflation really does return on a longer-term basis, it would mean that equities and bonds would become positively correlated on the downside - that is they will both go down in price together.
The return of inflation fears has been stoked again by the rise in commodity prices, especially oil, which has jumped over 90 percent from its March 13 level of $35 a barrel (bbl.) to around $70/bbl. now.
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