Inside Markets

A combination of factors have us currently bullish on bond duration.

Steep curve inversion and tepid US growth data from Q4'22-Q1'23 generated consensus for an imminent recession.

The credit rating downgrade is more about sentiment than any kind of direct impact.

Recent tightening with yesterday's SLOOS report suggests the economy should slow into year end.

Ten year yields still look like they peaked last October at 4.2%.  A new high in the 10-year yield would take equities lower, where a move to ~3.5% would likely drive the S&P 500 (SPX) to a new all-time high.  

Aggregate US data continues to support the soft landing narrative with today's ECI and PCE reports helping to ease inflation concerns.

The Q2 earnings season is coming in better than expected with the SPX beat rate recently lifting above the 5-year average.

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The bar is higher this quarter for mega-cap Tech earnings, but results have been largely inline with expectations thus far.

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Markets are priced for a 25bp rate hike and a message that signals a pause in the hiking cycle.

The combination of marginally hawkish Fed and underwhelming mega-cap Tech results would be catalysts for a pullback in the SPX.