Closing Thoughts for the Week

The week was relatively light with new information to work with, but the new data we did get essentially confirmed what we already know. I still think investors are waiting to see what comes out of the Fed meeting in two weeks. The oddest behavior came from utilities. One area that we are starting to see more heightened volatility already is in the dollar.

Inflation and the Fed remain the dominant market themes. The latest data is going to keep the Fed in a firmly hawkish mood and probably makes a 50 basis point rate hike next month a distinct possibility. Justified or not, the Dot Plot could look ugly and spark another round of selling in both equities and bonds. In terms of the timing of a potential recession, I think watching the 10Y/3M Treasury spread here will be important.

Conditions are starting to look a bit more risk-off here. It’s a bit of a confusing market here with no single sector or theme really leading the markets. The underlying economic data for the U.S. still looks pretty good, but inflation looks like it will remain a sticking point. My original 4-5 week timeline for risk-on conditions still looks like the base case scenario.