Morning Notes

The driver behind this week’s rally is a growing belief the Omicron wave will be widespread but relatively brief with infection rates fading in early January, if not sooner.

Light attendance and thin liquidity into a catalyst vacuum typically leads to trend continuation.  

The SPX tested near-term support at ~4545 yesterday.  A firmer core PCE number could bring a test of stronger, secondary support sits in the 4430-4500 range.

Support for 10-year Treasury yields sits in the 1.35%-1.40% zone with sustained levels north of 1.55% confirming a reversal to higher levels. We see some light resistance in the low 1.70s, but look for yields to reach the 1.90-1.95% range sometime in H1’22.  

Crowded positioning in Tech reflects a bias to own secular growth stocks following 12+ years of disinflation that resulted in sub-1% ten year Treasury yields.  

Today’s FOMC had been the primary focus for markets this week, but attention will quickly turn to tomorrow’s ECB meeting.

The S&P 500 failed to break pattern resistance yesterday with intraday levels suggesting a pullback to immediate support into last Tuesday’s upside gap around 4590.  

Look for the Fed to double its tapering pace to $30B/month on Wednesday with the updated dot plot showing 3 hikes in 2022.

Today’s in-line CPI report and Wednesday’s JOLTS report that implied tighter labor market conditions won’t change the near-term narrative on inflation. It’s not hard for inflation rates to decline from here given much tougher comps starting in December, but the theme looks like it will

Tomorrow’s CPI report will undoubtedly have an impact on markets.  From a longer-term perspective, inflation rates impact equities/equity valuations through four main inputs.