June 9, 2022
Our primary focus for equity markets are 10-year inflation breakeven yields, which currently sit at 277bp. Levels below ~256bp should ease recession concerns by driving the terminal Fed rate (June ’23 futures) from ~300bp today to ~280bp. Levels above 283bp would break technical resistance, adding near-term support to the recession narrative. Near-term technical resistance on the S&P 500 remains ~4,150 with stronger resistance just above 4,300. But equity markets remain deeply oversold, sentiment is bearish and positioning is light, which keeps risk skewed to the upside. A change in the inflation narrative is the upside trigger and 10-year breakeven yields below 256bp is the level to watch.