The View from 5th Avenue – 13 September 2022

The worst hit on The S&P since June 2020 and The Nasdaq 100’s biggest intraday drop since May 18th , has left The Fed with no alternative but to slam on the brakes of the economy, with even tighter financial conditions. Or rather, hot inflation and labor markets have left The Fed with no other option. Today's CPI print (and gap higher in the Fed "Terminal rate") has basically served to increase the odds of a dreaded "Hard Landing." Traders had built in muted expectations for the CPI today. Lower energy costs should lower inflation, they said. It will be easy, they said. “They” weren’t expecting the other parts of the index to rise. There was plenty of speculation around in terms of what caused CPI ex-Energy to miss, but with so much of the basket moving higher, it's clear there's a larger, more persistent trend at play. The odds of a 75bps hike now stand at 66% and 100bps now at 34%, though more aggressive hike expectations could leave investors pleasantly surprised when the time comes. The result of today’s shocker was the undoing of the last 4 days of positive moves. The SPX fell back below 4000 (support at 3900), and the Dollar (DXY) ramped back up +1.4%. The weakness in equities was broad based, with ZERO stocks in the green for the NDX, and only 5 for the SPX. That said, we still remain in the same range we have been ranting about - even the 10 year’s move higher (up as much as +22bps at one point), stopped short of the 3.5% resistance level we have been watching. All sectors closed in the red, with Energy the “least bad” after commentary from OPEC indicated continued strong demand (though the sector is still hanging onto +1.7% worth of gains this month and +44% ytd). Biden's commentary on the Inflation Reduction Act this afternoon and news that Twitter (+0.8%) shareholders approved Elon Musk’s $44bn buyout, was mainly ignored. But Triple Witch and CTA positioning cannot be. And we’d bet the PPI release tomorrow will now have everyone’s attention.