October 21, 2022
Good morning,
Futures are down 1% at overnight session lows this morning about an hour before U.S. markets open. They are off due to the continued spike in yields on Treasuries and new relative highs on the Dollar. Earlier this week, I suggested choppy, sideways action may be in store for stocks leading into the next Fed meeting, now less than two weeks away. What I didn’t see are the headwinds for stocks from rising yields approaching something closer to a tempest. In a matter of hours this week, 2yr through 20yr yields in Treasuries are now closer 5% than 4%. On a relative basis, stocks have done much better than sideways thus far into the yield storm. The S&P 500 is still +2.3% on the week, although it is hard to imagine stocks can keep that up if fixed income continues to sell-off with this week’s vigor.
If we can get to the next Fed meeting without calamity, the are several macro factors that could help spark a year-end rally. Over a period of 9 days beginning 11/2, there are four calendar events that could act as catalysts. The result of the Fed meeting on 11/2, another employment report on 11/4, the election on 11/8, and finally, CPI on 11/10. As we get closer, we’ll have more detail about the setup ahead of each of these events. Yes, I know what you’re thinking – Hope springs eternal around here on Fridays. You’re probably right but have a nice weekend, nevertheless.
Be well,
Mike