Morning Notes

The S&P 500 (SPX) has returned to deeply oversold levels and now testing June lows at ~3660 with long-term valuation and technical targets just underneath in the 3500 handles.

Equities closed lower after a more hawkish dot plot (median ’23 dot of 4.625% pushed terminal rate expectations higher) and increased recession worries on Powell’s warning about economic pain.

Consensus is looking for a 75bp hike and hawkish press conference where Powell stays focused on remaining inflation risks.  In addition to today’s rate hike, markets are also currently priced for 75bp in November and 50bp in December.

Over the past week, we’ve received negative Q3 earnings preannouncements from DOW, EMN, HUN, OLN, F, GE, FDX, ARNC, NUE, FLS, SIVB, MCK, NWL, CHD, STX and Electrolux in Europe.

The S&P 500 is currently trading below technical support at 3890, which should open the door for a full retest of the June lows at ~3660.

The first two weeks of September always include a number of sell-side industry conferences where companies provide updates/trends post-CQ2 earnings season.  A good percentage of S&P 500 companies presented with aggregate commentary sounding similar to what we heard in July/August.  

Tuesday’s hotter than expected core CPI report has markets full priced for a 75bp hike with odds of a 100bp hike priced at ~25%.

After yesterday’s CPI print, bond markets are now priced for a 75bp hike at next week’s meeting with expectations for November shifting from 50bp to 75bp and December going from 25bp to 50bp.

The hotter CPI print lifts terminal Fed rate expectations to 4.15% and pressures the S&P 500 back below the 4020-4040 range that previously defined pattern resistance.

In mid-August, the S&P’s failure to get through its 200-day moving average at ~4330 resulted in the reemergence of broad-based short selling with several sub-sectors back to year-to-date highs in terms of short interest.