May 10, 2022
Prior to 2/24, the relationship between commodity prices, Fed expectations and bond yields functioned normally and the S&P 500 (SPX) found a footing at technical support near 4,100. That level also matches the magnitude (~15%) of the past four corrections (1983, 1994, 2004 and 2015) when the Fed removed policy accommodation. The duration of those past corrections lasted between 3-6 months, before the S&P 500 moved to news highs in the ensuing 6-12 months. Despite the break below ~4,100, we expect the SPX to follow this template in H2’22 as the collinearity between inflation expectations, bond yields and Fed policy returns to normal.