Morgan Stanley with the note:
Over the past few weeks, I have been highlighting the increasing probability of a colder winter but a later start than previously expected. In other words, our ‘fire and ice’ narrative remains intact, but timing of ice has been pushed out. Having said that, with inflation running hot in both consumer and corporate channels, the Fed is expected to formally announce its tapering schedule at this week’s meeting, with perhaps a more hawkish tone to convince markets that it isn’t falling too far behind the curve. So, the fire segment (higher rates driven by a less accommodative Fed spurring multiple compression) is clearly underway and has been a focus for investors since the Fed started prepping the markets at Jackson Hole.
With rising inflation now getting so much attention from both investors and the Fed, we shift our focus to the ice segment–i.e., the ongoing macro growth slowdown–and when we can expect it to bottom and reverse course. As regular readers know, we have been expecting a material slowdown in both economic and earnings growth amid amid-cycle transition. The good news is that so does consensus, with 3Q economic growth forecasts having come down sharply before last week’s disappointing outcome. While its estimates of 4QGDP have also declined, the consensus expects growth to reaccelerate sharply from here. Most have blamed the Delta variant, China’s crackdown on real estate or supply shortages for the economic disappointment in 3Q, with the assumption that all three will get better as wemove into year-end and 2022.
