Inflation, pandemic and war? The markets have priced in that.

Because inflation started rising 12 months ago, year-over-year comparisons will be more favorable this spring. Furthermore, two of the causes of current inflation, expansionary financial conditions and coronavirus-induced supply problems, are already changing substantially and may soon reduce the rate of inflation, Paulsen said.

“The biggest supply problem, by far, is labor,” Paulsen said. “Many people were unable to work before the pandemic, and many were reluctant to work at the wages that were offered at the time. All that is changing now.” As the labor bottleneck eases — thanks in part to higher wages — he said, the supply of goods and services will begin to meet the demand for them, reducing pressure on prices.

Andrew Slimmon, managing director of Morgan Stanley Investment Management, said in an interview that freight costs and shipping delays have been falling, which may predict that the CPI will be substantially lower six months from now and that, “perhaps time, the Federal Reserve will win. I need to raise interest rates as much as the markets expect.” Corporate earnings remain strong despite the world’s troubles. So expect a tough year, but one that will include gains in the stock market before it’s over.

Russia’s assault on Ukraine and the course of the pandemic in China and elsewhere are wild cards. On Thursday, the Conference Board, a business research organization, projected an extremely wide range of possible outcomes for oil prices, inflation, economic growth and interest rates. Clarity is impossible now.

The critical question for short-term traders is whether the financial markets have generated enough pessimism yet. Energy price shocks have caused recessions in the past. That could also happen this time, deepening the darkness across the planet.

So this is not the time for casual betting. Only investors with an appetite for financial adventure will want to take on a lot of new risk now. Still, the fog will lift at some point. With any luck, those who had the strength to have endured when the outlook looked bleak will find that they have prospered.

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