Equity markets began the week in retreat after stronger-than-expected economic data renewed fear of the FOMC. The data included and hotter than expected reads on ISM services and Factory Orders that suggest underlying economic momentum is still strong. the risk now is the FOMC will slow the pace of interest rate hikes but raise the end target and extend the duration of higher rates. In this light, investors should expect to see core FOMC interest rates top 5.25% in 2023, a mortgage to top 10%, and for these conditions to linger well into 2024.

The market may get another shock later in the week. The producer price index is due out on Friday and may be hotter than expected. The takeaway here is that any increase in producer prices will lead to additional increases in consumer inflation down the road. As for the S&P 500, the index fell more than 2.0% at the low of the day, closed near the low of the session and appears to be confirming a new downtrend in stocks.