MarketBeat Minute

Equity markets advanced on Thursday, gaining nearly a full percent at the session's high. The move was spurred by a retreating yield for the 10-year treasury and may indicate a bottom in the market, but investors should not chase prices. The yield on the 10-year treasury retreated, but it is still at historic highs, and there are risks for the market. The #1 is inflation, which is underpinned by higher oil prices.

The next major hurdle for the market will come next week. The monthly labor data is due and should continue showing a solid labor market and upward wage pressure. The wage gains are good for consumers but aid the rise of consumer-level inflation and are a risk for investors. With wages and oil prices rising, inflation will certainly remain a problem for the foreseeable future and continue to pressure earnings growth for S&P 500 companies.

Equity markets tried to rebound on Wednesday but could not hold the gain. Rising oil prices invigorated fear of inflation and sent the markets down more than 0.5% at the session's low. The price of WTI advanced more than 3% at its high for the session and is on the verge of breaking out to a new 1-year high. The yield on the 10-year treasury, a gauge of the direction of interest rates, did advance to a new 1-year high, suggesting the FOMC's work is far from over.

Adding to the fear are comments from Fed President Neel Kashkari. In his view, interest rates are not high enough now and could be raised significantly before the threat of inflation is tamed. The S&P 500 could sink another 20% or more in that scenario. The next big hurdle for the market is Friday. The PCE price index is expected to show headline inflation accelerating, which could come hotter than expected.

The equity market resumed its selloff on Tuesday as investors brace for the PCE price index. The PCE price index is due on Friday and is expected to show inflation accelerating and point toward another FOMC interest rate hike. The increase in fear is significant because the market is not concerned about a single 25 basis point hike but the possibility of several more hikes. That fear is manifested in the 10-year Treasury yield, which gained about a half percent to move to a new high and the highest level since 2007. The charts look like the 10-year yield could move up above 5.0% soon and remain at those levels indefinitely.

The VIX is another concern for investors. The VIX is the S&P 500 "fear index," and it had fallen to the post-pandemic low due to complacency. Now the index is surging higher, at the highest levels in a month, and heading higher based on the indications. In that scenario, the VIX could rise 50% to 100% from its current levels, which suggests another 20% decline in the S&P 500.

Equity markets tread water on Monday as investors brace for a turbulent week. Few earnings reports or economic releases exist, but Friday will bring the PCE price index. The PCE Price Index is the Fed's favored tool to gauge inflation and is expected to be mixed. The core reading is expected to cool compared to the previous month, but the headline will accelerate. Because the headline is a leading indicator of core inflation, it will point to another interest rate hike this year. In this scenario, the FOMC will hike rates to the highest level in over a decade and send more banks to the brink of collapse.

The equity market is at a critical turning point. Either the market will get its feet back under it, or it won't. The market will likely rally higher into the New Year if it can regain footing. If not, the selloff will gain momentum and threaten to wipe out all of this year's gains. In that scenario, momentum could build as investors run for cover and take the S&P 500 back to the depths of 2022's lows.

Equity markets retreated last week following a hawkish fed statement. The FOMC indicates interest rates will remain higher for longer confirming that a new normal is in place. This normal includes high inflation and high interest rates, ?neither of which is expected to change soon . The next move for the Fed is a probable rate hike.?

Oil continues to be a threat to the market. The oil price rose to another new high, and the bulls target $100 per barrel. In this scenario, inflation will accelerate and keep the Fed?s foot on the brakes regardless of whether they hike rates again. As it is, the market expects rates to remain at or above current levels until mid 2024, which may be optimistic. OPEC and Russia have the oil market tilted in favor of higher prices.?

Equity markets pulled back on Thursday following the Fed's Wednesday policy statement. The statement sent the yield on the 10-year treasury shooting skyward to set a new multi-year high, and the threat of recession grows. At the new levels, the rate on the 30-year mortgage will also rise and soon top 8%. At this level, homeowners signing contracts for new mortgages will be paying nearly 3 times as much interest payments as at the bottom of the pandemic, which threatens the housing market. With rates at these levels, existing homeowners are unlikely to move without cause, keeping the market tight.

The S&P 500 shed more than 1.50% at the session's low and is in danger of a more profound decline. The index is above critical support at the 150-day moving average, which may not hold. In that scenario, the S&P 500 could fall another 5% or more before hitting bottom. The next significant catalyst is the PCE report due next week. Another hot read on inflation will ensure the FOMC hikes rates at the next meeting.

The S&P 500 fell on Wednesday after the FOMC indicated it was not through raising interest rates. The FOMC held rates steady in September as was expected but said it would raise by another 25 basis points by the end of the year. If so, it would mark the 12th increase since the cycle began, putting interest rates at the highest levels in decades. At current levels, demand has begun to deteriorate; another hike would accelerate the decline and possibly impact S&P 500 earnings.

The S&P 500 is down more than 4% from its recent highs and heading lower. The index has confirmed resistance at a critical level and will pull back at least 5% before the move is through. The risk is that oil prices will continue to rise and accelerate inflation, leading the FOMC to hike rates more than already indicated. In that scenario, the S&P 500 could correct up to 20% or more. Regardless, interest rates are now expected to remain at or above 5% through the middle of 2024, nearly a year longer than previously forecast.

Equity markets were fairly steady on Tuesday ahead of the FOMC policy announcement. The Fed isn't expected to alter policy today when it makes the announcement, but it is expected to sound hawkish. The combination of accelerating inflation and rising oil prices poses a risk for the economy that it can not let stand. Based on the data, the FOMC will likely indicate at least 1 more hike is coming this year and leave the door open to 2 or more by early 2024.

The question for investors is what to expect from the rest of the year. The economy continues to show momentum, and the consumer remains resilient, so the S&P 500 will likely return to earnings growth by year-end. The caveat is that the growth outlook continues to be hampered, which may weigh on price action until the Q3 reporting cycle begins in 3 weeks. As it is now, the S&P 500 is showing a top and looks ready to move lower, given the signal to sell.

Equity markets were cautious on Monday as investors wait on the FOMC policy statement due on Wednesday. The FOMC is not expected to alter its policy, but it could issue a very hawkish statement given the state of inflation and the rise of oil prices. As it is, the market does not expect the FOMC to hike rates anymore this year or this cycle and may get a shock come Wednesday.

Strikes have emerged as a threat to the economy as industry after industry walks off the job. The risk is more than life disruption today; it also extends into inflation. The goal of unions is for more pay, shorter hours, and better conditions, fueling labor costs and inflation later this year and next.

The S&P 500 is hovering beneath critical resistance at 4,540. This level may hold until Wednesday, when the FOMC issues its statement. The market will then signal its next big move, and the odds are high for a correction.

Equity markets closed out a mixed week on a sour note, falling more than 1.0% on Friday. The move was driven by concern inflation was still running hot and that the FOMC would sound hawkish at this week's meeting. The latest round of inflation data included the CPI and PPI, which both showed unexpectedly large accelerations compared to the prior month and year. The risk is that this data and the rise in oil prices will push the FOMC into another series of interest rate hikes.

The S&P shows signs of resistance at a critical level. That level is the range of 4,440 and the all-time high, and it may be a barrier the S&P 500 can not pass. Even without another interest rate hike, the FOMC will keep rates higher for longer, which is a significant economic threat. The longer rates remain high, the deeper the impact on activity, although that is the point. Activity at the current levels is sustaining high inflation levels, and the FOMC can't sit idly by and let it happen.