Judging by new Google search data compiled by Deutsche Bank strategist Jim Reid, the average Joe or Jane may be getting worried about inflation, possibly crimping purchasing power and longer run investment returns. Reid found Google searches for inflation are now at their highest levels since late 2010 (chart below).
"There is little doubt that concerns and interest around inflation are growing exponentially," Reid says, adding there is a little something for both bulls and bears on Wall Street from his inflation findings.
"The doves might point out that we saw similar spikes in 2008 and 2010/11 that didn’t ever translate into much actual inflation. The hawks would point out that one of the major differences between the post-GFC and post-COVID policy is the scale of the extraordinary fiscal response," explains Reid.
At least right now, inflation hawks continue to win the sentiment battle in markets.
The yield on the 10-year Treasury has gone from about 1.07% on Feb. 1 to 1.68% presently. Investors have reasoned that with a strong economic recovery later this year as more people get the COVID-19 vaccine, inflation will return. In turn, that will spur the Fed to raise interest rates faster than expected and then depress stock prices.
More insight on the Federal Reserve's inflation thinking will come via their latest decision on interest rate policy Wednesday. Market watchers believe the Fed will lift their forward growth and inflation expectations, which may place added upward pressure on yields and further downward pressure on stocks.
Just this week Bank of America warned a 2% level on the 10-year yield could spark a stock market correction, which is loosely defined as a 10% pullback. Citi Private Bank chief investment officer David Bailin agrees with the 2% level on rates being a red flag for stocks.
In particular, such a level could do added damage to a tech stock complex that has been hammered in recent weeks as yields have climbed.
"When rates go from 1% to 2%, that discount rate is a significant change and significantly changes the value of technology shares that have yet to generate income," Bailin told Yahoo Finance Live.
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