Inflation, pandemic and war? The markets have taken this into account.

Given that inflation started to soar 12 months ago, year-over-year comparisons will be more favorable this spring. In addition, two of the causes of current inflation — expansive financial conditions and coronavirus-induced supply issues — are already changing dramatically and could soon bring the inflation rate down, Paulsen said.

“The biggest supply issue, by far, is labor,” Paulsen said. “Many people could not work earlier in the pandemic, and many were reluctant to work at the salary then offered. Everything 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 demand, reducing price pressure.

Andrew Slimmon, managing director of Morgan Stanley Investment Management, said in an interview that freight costs and shipping backlogs have come down, which can predict that the CPI will be significantly lower six months from now and “maybe that the Fed won”. There is no need to raise interest rates as much as the markets expect. Corporate earnings continue to be strong despite global issues. He therefore expects a difficult year, but one that will include stock market gains before it is over.

Pessimism as a baseline

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

The crucial question for short-term traders is whether the financial markets have already pessimized enough. Energy price shocks have caused recessions in the past. It could happen this time too, deepening the gloom around the planet.

Now is not the time to make casual bets. Only investors with an appetite for financial adventure will want to take on a lot of new risk now. Yet the fog will lift at some point. Hopefully, those brave enough to hang on when the outlook looked bleak will find they have thrived.