Fed chases runaway stock market

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The market is caught between two poles. At one end are declining yields and lengthening duration which favours growth stocks. At the other end is a recession that has barely started and has not yet hit the earnings outlook hard enough. In the middle is the Fed.

Charlie McElligott at Nomura:

The Fed “got the memo” in a big way it seems, as Committee speakers yesterday grabbed the Rates market by the scruff of their neck and slapped some “inflation hawk” sense into them, with the front-end and UST Yields experiencing a shockreversal due likely “stop-outs” in late-comer “dovish / recession” Longs (largest 1d move in 10Y Treasury Yields in 5 years, ex 2 days at peak of COVID lockdown), all due to a circling of the wagons on the punitive inflation- and labor- backdrop realities making the prior market delusions about big Fed EASING as early as Q1 next year see sharp “come to
Jesus” moment

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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.