July 1, 2022
The biggest overhang for equities has been central bank policy and a shift in tightening expectations will remove the overhang. Inflation expectations have been diving since early-May with 10-year breakeven yields cracking secondary support below 262 bp on 6/22. However, the Fed will wait until realized inflation (CPI/PCE) starts to miss before it changes messaging. Some recent inflation data has missed expectations including a softer May core PCE this week and a downward revision in last week’s inflation expectations component of Michigan consumer sentiment.