Inside Markets

Last week, we called your attention to the all-time high in 10-year real yields at +228bp.  Positive real yields restrict activity with long lags that make it very difficult for the Fed to engineer a soft landing. 

The more dovish paraphrased takeaways from yesterday’s Fed policy statement: 1) committee finds little signal from the Q1 inflation uptick due to lagged effects embedded in the data.

Equity markets have remained relatively resilient despite higher bond yields and emerging growth headwinds. 

The SPX touched its rising 50-day moving average near 5126 yesterday before reversing to close slightly below that level.

This week’s Fed meeting has largely been de-risked due to significant repricing in rate expectations.

The SPX is testing near-term resistance at 5119. A sustained break above that level would shelve our tactically bearish outlook.

Yesterday’s note on the disinflationary implications from April flash PMI and record high real yields have started another branch for the decision tree.

Ten-year real yields (nominal yield – inflation expectations) are at an historical high of +225bp.

Yesterday’s recovery in US equities was primarily driven by short covering into a busy week of earnings.

Last week’s ~3% decline in the SPX followed a ~12bp backup in 10-year yields amid an upside retail sales print and more hawkish Fed messaging.