Inflation expectations (RINF) don't match US inflationI think market sentiment is overly negative. Expectations for inflation is as high as in Q4 2022 when inflation was very high in the US. I expect RINF to be lower by the end of the year than it is today. That is bullish for stocks.
If the interest rates go up further then this will finally harm employment levels and reduce profits which will lower US tax receipts. Based on that, the FED will need to hold interest rates or not raise them much more and this will be supportive in the short run for the market to go higher in the end of the year.
I expect the stock market is going to find a top around the end of the year or early 2024 and then, as unemployment rises, we are going to see short term interest rates come down and the market will likely have a capitulation event: perhaps Q2 2024. Given that the effects of positive real rates is hitting economies around the world it is likely that this is eventually going to hit the US economy as well. If people think this is a real possibility, then the incumbent President will prefer any inevitable crash happens early enough in 2024 that there can be an end of year rally for 2024 ahead of the Presidential election.
Obviously that isn't easy to control unless we put our tin foil hats on but there will be an earnest tug of war of ideas, of bulls and bears and of governors within the FED to put us in a better place for late 2024. Therefore, it would be good for the incumbent President if everyone can be reading headlines that say the 2024 recession is over. The other option will be to pivot a little early on FED funds rates and claim victory on inflation so that the stock market and economy gets a boost mid 2024 (with or without a capitulation event).
