The short squeeze party is in full swing but don’t mistake that for a bull market, says the excellent Michael Hartnett at BofA:
The Biggest Picture: inflation shock H2’21…rates shock H1’22…recession shock H2’22; once labor market turns recessionary (claims are up) bonds outperform stocks (Chart 2).
Tale of the Tape: Aug 4th 2020 marked lowest 10-year US Treasury yield (0.5%) in history of republic; past 2 years yield jumped 300bps to peak at 3.5% June 14th; regime change in 2020s = higher inflation, higher yields, lower returns, but “recession shock” has allowed 10-year yield to drop to 2.7% (Chart 3) = oxygen for bear market rally.