November 29, 2022
Catalysts ahead include Powell speaking at the Brookings Institution tomorrow on the topic of Fiscal and Monetary Policy. This is his first ‘policy’ speech since his late-August Jackson Hole address that pushed terminal rates higher by ~10bp, ten-year Treasury yields higher by ~9bp and the S&P 500 lower by -3.4% (NDX down -4.1%). Tomorrow’s speech has markets bracing for a possible repeat, but financial conditions are much tighter today than they were in late-August. The terminal rate has gone from 3.74% in late August to 5% today and Fed funds have gone from 2.50% to 4%. Consensus was looking for an eventual Fed pivot back in August, but that’s now shifted to ‘higher for longer’ and we see the event as largely de-risked.
Chartist: Extreme oversold market internals and bullish momentum divergence in mid-October had us looking for a Q4 rally. The bullish signals match those from other major equity market inflections from the past 20 years, but strong technical resistance for the S&P 500 (SPX) in the 4100-4200 range held our optimism in check. There should be more upside if the SPX can hold tactical support at ~3900 but we still look for ~4200 to cap the Q4 rally absent a material change in macro fundamentals.
Next: Friday’s Jobs Report and the December 13 November CPI print are the near-term catalysts capable of changing macro fundamentals. Consensus for Friday’s Jobs Report is looking for non-farm payroll gains of ~200,000. In the current environment, payroll gains under ~100,000 or CPI falling another 50bp YoY would constitute a change in macro fundamentals.