A wrong call by funds management giant Fidelity shows the challenges of market predictions.
Some predictions survive longer than others. Salman Ahmed, a top strategist at Fidelity Investments, made one for 2023 that didn’t make it past the new year., he referred to “tentative signs” in China of the relaxation of tight anti-pandemic controls, which he said would happen “slower than expected”.
The US fund manager isn’t convinced that central banks won’t throw tens of millions of people into unemployment as they strive to wring the life out of inflation. In simple terms, Fidelity accused much of Wall Street of confirmation bias; or of believing something it wants to be true.“Markets want to believe that central banks will blink and change direction, negotiating the economy towards a soft landing,” Ahmed’s colleague, Andrew McCaffery, wrote.
Which implies that Fidelity’s hard-landing scenario is in no way incorporated into the prices of shares, bonds or property. The crucial factor is the pace of inflation, which will, or should, influence interest rates, which determine the value of future cash flows.Among the confident predictions about the path of rates, one company was willing to admit that accurately predicting inflation is not really possible.
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