Inflation Expectations, 10-Year Treasury Yield and the Equal Weight SP500

September 24 2023 Update

The market had a bad week and when looking at the equal-weight SP500 it is easy to see the acceleration to the downside:

We are still within the “range-bound” box, so let’s see if the market will keep bouncing within the same range or break down.

My view is that the market is reflecting the move of the 10-year treasury yield which keeps moving higher, reflecting expectations for higher inflation:

See how $TNX is breaking out from a consolidation period that lasted 1 year. We need to see the $TNX to stabilize or reverse before getting back into the market.

In the very short term energy prices moves will impact a lot of inflation expectations.

Here is the chart of the OIL price $BRENT:

Oil is breaking up to the upside. Now let’s see if the trend continues or not.

Any positives around us? Well, financial conditions are actually not in a danger zone according to the Chicago FED Financial Conditions Credit Index:

Also, total Money supply (M2) in real terms is back to what looks like its “natural” trend, after eliminating the excess money printed after the pandemic:

This, coupled with the amount of fiscal stimulus in the US has helped keep the economy away from a recession.

The economy has been growing over the last 5 quarters and is expected to grow around 4.5% in Q3.

The problem with that is that a strong economy will allow the FED to keep rates “higher for longer” and also it does not help in cooling inflation expectations.

Job openings are on the decline which speaks to an economy that might be slowing down some months from now:

Yet, jobless claims are not rising at the moment.

All in all, a puzzling environment where in my view the most important numbers to look at are the 10-year treasury yield and how the markets move.

In the mid to long term, I remain bullish on AI, Robotics, Software, Automation, and green energy to name some of the most promising trends. Yet, I need to wait for a better environment before committing more capital to the market.

Let’s see what the market brings next week.

PORTFOLIOS

I am doing nothing this week.

In my 10X SMALL CAP MOMENTUM POT I was kicked out from BRAG 0.00%↑ So I am left with ML 0.00%↑ which is 10% above the purchase price.

In my 10X LARGE CAP Momentum pot I have one position only which is LI 0.00%↑ and I am up about +12%.

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Important: This is not investment advice. Consult a licensed financial advisor before making any investment decision.