The View from 5th Avenue – 16 September 2022

Not the end to the week we were hoping for As I go to end the week with a view entrance that’s been used too often recently, it’s fitting – the same trends we have seen recently continue to be present. Still negative economic data combined with a yield curve that shows massive uncertainty in the short and long term gives investors plenty of pause as recession looms. Add on the fact that the US 10-year real yields are above 1%, the highest level since 2018, and the safe haven USD is the place to be. And yet, the VIX remains low – we seem due to grind lower (although a move like today is certainly harrowing). Positioning continues to be negative, with the latest non-commercial S&P futures data showing renewed selling. There’s plenty to talk about– triple witching was always going to induce some interesting moves, while unexciting (although slightly better than expected) University of Michigan data prevented the markets from a happy end to the week. There was a sour taste to the morning too – FedEx last night with a massive miss led it to its worst drop since the crash of the ‘80s. This led the S&P to dip below the short-term support we have been watching (3900 on S&P futures), although the 10-year yield couldn’t break its 3.5% resistance. The momentum to the downside continues, although for the optimists, the S&P bounced 6 out of the 8 weeks immediately post options expiry in 2022. There was certainly a defensive flavor to the day, with Staples, Telcos, and Utilities outperforming. Semiconductors also outperformed after INTC announced its dividend and a new processor. Any good news in such a damaged space sure to induce some covering. With the BofA Bull & Bear indicator barely ticking off of lows and overwhelmingly negative sentiment, contrarians must be licking their chops. Maybe things could finally get better once the Fed is out of the way (17% probability of a 100bp hike). Then again, why buy the dip now? Enjoy the weekend.