Rampaging inflation, the war in Ukraine, soaring bond yields and the Federal Reserve’s expected interest rate hikes have many investors worried that a recession is on its way.
As for inflation, consumer prices surged 7.9% in the 12 months through February, a 40-year peak. And the Russia/Ukraine conflict has triggered a jump in commodity prices that might drive inflation higher.
The 10-year Treasury yield has soared 81 basis points so far this year, to 2.32%.
The Fed began raising rates March 16, this time by 25 basis points, and Fed Chairman Jerome Powell suggested March 21 that he’d be open to a possible 50-point move in a later increase. Fed officials have a median forecast for six rate hikes for the rest of this year, assuming each increase is 25 basis points.
As for investors wary of recession, Carl Icahn is one of the most prominent.
“I think there very well could be a recession or even worse,” he told CNBC.
“I have kept everything hedged for the last few years,” he said, presumably referring to his stock positions.
“We have a strong hedge on against the long positions, and we try to be activist to get that edge ... I am negative.”
The Fed is trying to produce a soft landing for the economy, lifting interest rates enough to stamp out inflation, but not so much as to wipe out economic growth.
“I really don’t know if they can engineer a soft landing,” Icahn said. “I think there is going to be a rough landing ... Inflation is a terrible thing when it gets going.”
One way Icahn is dealing with the possibility of recession is by wagering against commercial real estate, including shopping malls. The Nareit index of retail real estate trusts has returned 18.5% over the past year.
