Insights
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The Magnificent Seven
The S&P 500 reached a new all-time high last week after a feverish run that began in late October. The index has recorded gains in 12 of the last 13 weeks (see chart below), an occurrence that has not happened since 1985.
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The Market is Not The Economy
As we enter 4th quarter 2023 earnings season, the current forecast for S&P 500 earnings growth stands at +1.6% which, if accurate, would mark the second quarter in a row of positive earnings growth for the index, after a surprising +6.3% y/y earnings growth rate for the 3rd quarter.
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Prepare For Landing
This past Tuesday we received an updated read on inflation, as the Consumer Price Index (CPI) increased 0.1% m/m or 3.1% y/y, in line with consensus, continuing the trend down since June 2022, when CPI registered at 9.1% y/y (chart below).
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Assessing The Fear Index
Last week, the Chicago Board Options Exchange’s CBOE Volatility Index (“VIX”) dropped to 12.46, marking its lowest reading since January 2020 (see below).
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Is A Recession Approaching?
Equities have rallied in recent periods following the Federal Reserve’s decision to hold the target range for the federal funds rate at its 22-year high of 5.25%-5.5% for the second consecutive time after 11 consecutive rate increases.
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Emerging Fragility for Equity
In our most recent edition of Market Insights, we noted that the current drawdown in long-duration US Treasuries is worse than the drawdown stocks experienced during the 2008 financial crisis.
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The Vicious Cycle of Rising Yields
This week we’ve witnessed a stunning rise in longer-term Treasury yields (and drop in prices), with the 30-year bond briefly hitting an effective yield of 5% Wednesday morning, the first such occurrence in 16 years.
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Zombie Companies on The Rise
With the Federal Reserve’s announcement yesterday that they would be maintaining the target Fed Funds rate in September, but noting it still expects one more hike before the end of the year and fewer cuts than previously indicated next year, it’s time to assess the impact we’ve witnessed from higher rates so far and what may arise in the coming months.
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A House of Cards
There’s a stalemate in the housing sector that is coming to a head and could have far-reaching market implications if it’s not resolved. Earlier this week, the US Mortgage Bankers Association announced that Mortgage Purchase Applications (below) have dropped to a 28-year low as mortgage rates hover around 22-year highs.
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Establishing Equilibrium
At Chairman Powell’s upcoming speech at the Jackson Hole Economic Symposium this Friday, investors will look to glean any indication of the Fed’s viewpoint on the current state of the economy and if we can expect further rate hikes in the months to come.
