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Morning Notes — Catalysts Ahead

Catalysts Ahead

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.

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