Issue 9 – Disinflation Is Still On

Good news has been bad for both stock and bond markets. Good news has added upward pressure on inflation expectations, forcing the Fed to react aggressively, which ricocheted into higher interest rates. Consequently, consumer confidence has erratically trended lower through the piece. The Conference Board’s monthly consumer confidence index, which reflects changes in the labour market and inflation, fell for consecutive months in February, with the index measuring future economic conditions falling sharply. In the last two months, yield on 10-year Treasuries rose 60 bps to 3.94%, inflation expectation surged from 1.63% one year out to 3.50% and 5-year real rates increased 30 bps to 1.54%. As a result, the futures market has priced in a 25% chance of a half-point hike in the policy rate on March 22, something no one thought possible just a month ago. Several Fed officials tried to quell those worries, but investors did not respond. The S&P 500 touched 3950 last week, close to the 3900 red thin line. The levels surrounding 3900 include the internal trend line that defined the 2022 bear trend. The 50-day, 100-day, and 200-day moving averages also rest in that same area.


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By Hubert Marleau

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By Hubert Marleau

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