Inside Markets

Recent equity market resilience has been driven by lower bond yields and rotation into growth sectors.

Reduced bank credit creation will slow the economy and slow inflation with the lagged effects of official government statistics causing the Fed to remain behind the curve.

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The S&P 500 remains relatively resilient as investors look through near-term economic pain on expectations for an eventual Fed pivot.

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In addition to the Fed decision, markets will pay close attention to Powell’s press conference for: 1) near-term direction on efforts to contain financial contagion; 2) associated impact on financial conditions from expected tightening of bank lending standards.

The debate over whether the Fed hikes by 25bp or decides to pause at tomorrow’s meeting seems less important when you consider that an estimated $440B of its BTFP facility has already been utilized.

Rotation into growth from value sectors began late last week after 10-year real yields reversed from strong technical resistance at +170bp.

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Bond market volatility has spilled into equity markets and other cross markets amid low liquidity conditions.

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The Fed backstop on deposits at SIVB and SBNY reduces the likelihood of more regional bank failures, but the pressure on bank's underlying business model remains acute.

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The Fed's decision to provide liquidity has markets speculating the central bank may elect to leave rates unchanged when it meets again next week.

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