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- The remarkable performance of risk assets in 2023 is not primarily due to the growing likelihood of a soft landing
- It instead reflects markets being buffeted by extraordinary amounts of central bank liquidity
- For now, those technicals remain positive, but beyond Q1 they should fade or reverse
- Underlying momentum in growth, earnings and inflation – beyond sticky supply-side effects – is significantly weaker
- The rally does not reflect the likelihood of a soft landing
- It is the direct consequence of a surge in Fed liquidity
- Widespread misunderstanding of these dynamics increases the likelihood of more rate rises and a harder landing later
- It’s not just a stronger economy
- Nor even those long and variable lags
- It’s that markets are being driven by money flows and not rate levels
