We should know by April if the worldwide inflation we are seeing is truly transitory. If it is then it's business as usual. If the inflation is long term then stocks will re-rate to the downside as money will flow from the market and into cash and IR bearing facilities to make use of the higher IR moving forward.Will this happen overnight (i.e. crash/corrections due to LT inflation) or a soft landing scenario is entirely dependent on how the Central Banks handle the situation. History has shown that large and knee jerk IR increases will dampen the animal spirits in the market and it will produce massive corrections on equities with stretched valuations. Slow and steady rises to IR will produce a softer but more prolonged headwind to equities with a bias to a bearish market trend. Either way it is a good scenario for equities in a higher inflation environment.
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