Even the pros are now mostly bearish, according to anecdotal reports from Goldman Sachs.Institutional investors have even begun to expect deflation more than inflation, despite having held the opposite view just a week ago:
Clients are uniformly bearish, led by the macro community. Market performance reinforced this view with the S&P 500 currently trading at a YTD low of 1023, down 5.0% during the past week and nearly 100 points or 8.5% in two weeks. The S&P 500 has returned -8.3% YTD.
Deflation now ranks much higher as an investor concern than inflation, which until just a week ago was still viewed as the greater risk. Concerns articulated by various investors included the prospect of a relapse in US housing; weak job formation leading to further slowdown in consumer spending; and legislative and regulatory uncertainty that eroded CEO confidence and curbed capital spending plans. 10-year Treasury yields slipped below 3% and 5-year implied inflation currently equals just 0.25%.
(Via Goldman Sachs, US Weekly Kickstart, 2 July 2010)