Author: jsc

The stability seen over the past two sessions comes after the S&P 500 (SPX) reached oversold conditions after an ~11% decline from peak.

Markets will be focused on four items from tomorrow’s Fed meeting: a signal on liftoff beginning in March, guidance on tapering, balance sheet plans and language used the press conference.

The near-term path of least resistance is still aimed lower, but important to watch for a developing bullish narrative with sentiment readings now in extreme bearish territory.

The main driver of the sell-off has been sharply higher bond yields at the start of the year.  The yield backup has been driven by expectations for a more aggressive tightening cycle based on Fed rhetoric.

Yesterday’s afternoon fade in the S&P 500 (SPX) looked like CTA selling and it’s important to see if the SPX can hold early gains without incremental drivers to shift the narrative.  

The most likely scenario from here still looks like a resumption in the cyclical recovery based on an end to the pandemic.

Bond yields will drive the near-term narrative as the 10-year approaches its 2020 high of 1.877%. We keep a Q1 target of ~1.90%, but see the 10-year tracking toward ~2.20% in the near-term, with the potential to extend toward the cycle high near ~2.50% sometime

This Friday kicks off CQ4 earnings season with a handful of large US banks reporting pre-open. Our preference to own regional banks over the last ~9 months was based on their ability to deliver loan growth despite difficult demand conditions.

Yesterday’s reversal and today’s follow through in Tech has been chalked up to deeply oversold conditions, but conditions were not/are not deeply oversold.

Growth sectors underperformed value sectors by 585bps last week as bond yields rose and the curve steepened.