Equity markets wobbled last week in holiday-shortened summertime trading. The move was sparked by caution and amplified by the Fed, which continues to trumpet the need for at least 2 more interest rate hikes. The takeaway from the week's action is that traders and investors continue to misprice the FOMC outlook. The odds of another 25 basis point hike moved up to 95% on the news, but the odds of another after that remain below 50%. In this scenario, the market is heading for a reckoning that may come sooner rather than later.

In other news, the labor data remains hot, but signs of weakening should not be ignored. The pace of layoffs fell monthly but remain up by 24% YOY, and the YTD figure is up nearly 250%. At the same time, the pace of planned hiring fell to a multi-decade low on an ex-COVID basis and suggests an economic slowdown is at hand. Likewise, the yield curve inversion fell to the lowest in several decades and suggests recession is imminent.