- Multiple selloffs in equities following strong jobs and ISM data highlights a general concern of returning inflation at a time when valuations are already quite stretched. Should this coming week’s CPI and PPI data surprise to the upside, the S&P 500 will likely extend its retracement.
- I do not see such a retracement reaching or extending beyond -10% from the highs. Recall that in August of 2024 during the Yen carry trade panic, the SPY sold off just under 10% before rebounding. Until the Fed signals a new tightening cycle, I think any inflation-driven selloffs will be short lived.
- I had originally expected markets to be strong leading up to the Trump inauguration with a temporary sell the news event once Trump entered office. It looks like we could be shaping up for an opposite “sell the rumor buy the fact” scenario.
- Yields and the Dollar continue to act as a strong headwind to risk. I remain confident the long end of the Treasury curve as well as the DXY are near their peaks, but I continue to be surprised by their indefatigable strength.