There is no place to hide from the bear market

Wall Street loves acronyms and nicknames. Consider the ‘TINA trade,’ which came into currency as governments struggled to mitigate the fallout of COVID-19.

With interest rates low, the Federal Reserve and federal government pumping trillions of dollars into the economy, and the job market snapping back from its pandemic-induced but shortlived freefall, TINA ruled the investment markets. TINA stands for “there is no alternative.”

In the COVID-19 capital markets, that meant stocks. Bond prices were already high, real estate was red hot, and with plenty of money looking for places to go, the stock market was the beneficiary of the TINA trade. There was no other place for long-term investors to be.

Until TINA tripped. Now there’s no place for investors to hide. There is no alternative to the fear gripping the investment markets.

Stock indices are in bear markets. It’s the worst year for U.S. bonds in about 30 years. Inflation is running at a generational high, eroding the value of cash. There is no alternative to weathering this wicked environment.

In the week ahead, the central bank’s favored inflation gauge will garner plenty of attention. The Personal Consumption Expenditures price index is expected to retreat from its monthslong climb. That will be a hopeful but hesitant sign that inflation pressures may be easing. It won’t knock the Federal Reserve off its tack of tackling inflation by raising its target short-term interest rate.

Inflation isn’t what the markets are worried about. It’s stagflation — the potent combination of high inflation and a weak economy. That fear has brought out the bears, and that fear has not loosened its grip.

Whereas once there had been no other place for investment capital than the stock market, as stimulus efforts pumped money into the economy, now there is no place to hide investment capital as the work is underway to drain that stimulus from the economy.