How Inflation Expectations and Rate Hikes Shaped the 2018 Market Selloff
Summary
This 2018 market commentary explains a sharp equity selloff through the interaction of growth, inflation expectations, and the expected pace of Federal Reserve rate increases. It uses a simple valuation relationship—earnings divided by interest rates plus risk premium—to frame how rising rate concerns can lower stock prices. The report also describes volatility-control strategies stopping out and technical selling reinforcing the decline.
The analysis interprets a falling dollar alongside rising long-term yields as consistent with relatively weak US growth and investors seeking assets abroad. It treats gold’s failure to rise during the selloff as evidence that rate fears, rather than deteriorating fundamentals, were driving equities. It assesses US valuations, offers a conditional view on gold around the next policy meeting, and expects oil to resume rising after a pullback. These are contemporaneous judgments, not validated trading rules: the report’s valuation benchmark is missing, some claims rely on market interpretation, and the forecasts depend on future economic data and policy decisions.
Key ideas
- The report links equity valuation pressure to higher interest rates and risk premiums.
- It describes volatility-control selling and trend-following feedback as amplifiers of the market decline.
- It interprets a weaker dollar and rising long-term yields as reflecting relative growth weakness and overseas capital flows.
- It uses gold’s decline during the equity selloff to argue that rate concerns outweighed safe-haven demand.
- Its gold and oil outlooks are conditional forecasts based on policy timing and commodity supply factors.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.