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Morning Notes — Consolidating Gains

Consolidating Gains

November 21, 2022

The S&P 500 (SPX) is now consolidating gains from the post-CPI rally that took the index through technical resistance at 3900. Once broken, old resistance levels become new support and 3900 should hold as long as 10-year Treasury yields remain below 4%.  At some point, the bond market will price in peak inflation, which will put a lid on yields and support equities further.  This is still a market that’s looking for clarity on terminal rates with the November Jobs Report on 12/2 as the most significant near-term catalyst. The OIS forward curve is currently pricing in a terminal rate of 5.06% at the June Fed meeting.  If that were to happen, we’d expect yields to peak in December or January with the SPX trading into the 4100-4200 range.

Over the weekend, Atlanta Fed President Bostic said he favors slowing the pace of rate hikes but expects another 75-100bp of hikes is warranted. Bostic’s comments imply a terminal rate of 4.75%-5%.  Catalysts for the holiday-shortened week will be Wednesday’s release of November FOMC minutes. We also get EU and US flash PMIs on Wednesday.

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