Inflation, Pandemic and War? The Markets Have Priced That In.

Because inflation began to surge 12 months ago, the year-over-year comparisons will be more favorable this spring. Furthermore, two of the causes of current inflation — expansive financial conditions and coronavirus-induced supply problems — are already shifting substantially and may soon bring down the rate of inflation, Mr. Paulsen said.

“The biggest supply problem, by far, is labor,” Mr. Paulsen said. “A lot of people couldn’t work earlier in the pandemic, and a lot were reluctant to work at the wages then being offered. That’s all changing now.” As the labor bottleneck eases — thanks, in part, to higher wages — he said that the supply of goods and services will begin to meet the demand for them, reducing pressure on prices.

Andrew Slimmon, a managing director at Morgan Stanley Investment Management, said in an interview that freight costs and shipping backlogs have been dropping, which may predict that the C.P.I. will be substantially lower six months from now and that, “maybe, the Fed won’t need to raise interest rates quite as much as the markets are expecting.” Corporate earnings continue to be strong despite the world’s problems. So he expects a rocky year, but one that will include stock market gains before it’s over.

Pessimism as a baseline

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 financial markets have already baked in sufficient pessimism. Energy price shocks have caused recessions in the past. That could happen this time, too, deepening the gloom around the planet.

So it’s no time for casual bets. Only investors with an appetite for financial adventure will want to take on much fresh risk now. Still, the fog will lift at some point. With a little luck, those with the fortitude to have hung on when the outlook looked grim will find they have prospered.