Thread by @saxena_puru

The 10-Year + 30-Year UST yield tanked after Jay Powell's presser as bond traders price in recession.

Bond market positioning itself correctly, but stock market is smoking #hopium

When there is a discrepancy between the bond and stock market, usually pays to bet on the former.

When recession lands in a few months, short-term rates will decline significantly and that is why bond traders are taking duration risk and buying lower yielding long-term bonds.

When recession lands, earnings will also decline meaningfully and $SPX should discount this in Q1.

All the "good news" is already known, therefore discounted. i.e. peak inflation and smaller rate hikes

The stock market hasn't yet discounted the deep (20-25%?) earnings decline in $SPX in 2023....that is the next shoe to drop.

Economic news won't be rosy in Q1/Q2.

Monetary policy works, but with a lag...

The full effects of changes in monetary policy only become known 9-12 months later.

The Fed started aggressively raising the FFR mid-year and full-scale QT commenced in late '22. The effects on the economy will show up in Q1/Q2 '23.

The Fed is telegraphing that a hard landing (recession) is acceptable so long as it brings down inflation.

There is no pivot coming.

The Fed intends on being tight through all of 2023 unless economy or stocks crash or there is a credit event.

Do NOT fight the Fed.