Investor positioning has now moved back to March ’20 lows. Broad market short interest is the highest it has been since March ’20, systematic fund exposure is in the bottom decile and hedge fund leverage is ~75% below the 12-month average.
The 11am Fed policy statement was a bit more hawkish than expected, promising ‘ongoing increases in the target rate,’ while the updated dot plot suggests 11 rate hikes (including today’s 25bp hike) total in 2022 and 2023
Brent price forecasts in the $150-$200 are worst-case scenarios based on little/no Russian supply finding its way to markets. Oil and natural gas revenue are Russia’s current economic lifeline, so these scenarios must assume the short-term voluntary avoidance of Russian Urals continues.
Ten-year Treasury yields now at ~2.12% are threatening to break through range resistance at 2.06%. The close matters most, but the move is consistent with our expectation for yields to advance to the ~2.30% level in Q2.
The S&P 500 continues to trade in the 4,100-4,300 support range as realized volatility slowly descends from recent highs. Geopolitical risks are holding the index in this range, while bullish technical signals, light positioning and extreme bearish sentiment result in a favorable risk/reward set-up.
We see the SPX tracing out a bottom in the 4,100-4,300 as realized volatility cools. The CBOE Volatility Index (VIX) is off recent highs of 36.45 to 30.90 today, but levels below 20 are probably required before a meaningful recovery can take place.
Tomorrow’s US CPI report has been partially de-risked by Powell’s comments in support of a 25bps March rate hike, rather than 50bps.
This morning’s intraday equity reversal follows a specific headline, but exacerbated by an oversold technical dynamic in our ~4,100-4,300 support zone.
Major European benchmarks closed well off worst levels today. Reports will focus on the Euro Stoxx 50 (SX5E) falling into technical bear market territory (down
The S&P 500 will struggle on rally attempts as long as equity market volatility remains elevated (VIX Index above 20). The VIX broke through 20 on January 6th and it usually takes a few months for volatility to subside.
