Weekhead: Things are about to change fast: Equity and Bond Views

There are decades where nothing happens; and there are weeks where decades happen

Hey everyone,

I hope each of you had a good weekend

Let me start with this: I truly believe we are entering a period of time where running trades in both equities and bonds will become incredibly important. If you are sitting in cash then that is completely fine. However, please pay close attention to any notes that I put out because things can change very fast.

Like I referenced in a previous article (link)

There is an old saying “there are decades where nothing happens; and there are weeks where decades happen”

Let’s get into it right away!

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Equities:

First, as I noted in the macro report (link), equities have primarily been driven by the valuation component as opposed to earnings. Why? Because of the bear steepener which has been driven by the duration issuance.

The price action on Wednesday of last week indicated a shift in this. The treasury is issuing less duration than expected and the FED had some dovish rhetoric.

Why does this matter? It shows the WHY for the move in equities. We aren’t seeing a negative stock bond correlation which would be typical of a recessionary environment.

A lot of people are getting hyped up on recession narratives because bonds are rallying. What is the problem with this idea? Well, equities rallied too which says a lot.

Is a recession coming? Yes, but the question is on the timing. If a recession takes place in Q3-4 of 2024 as opposed to Q1 of 2024, this could have massive implications for the PATH of price action.

Let’s talk about equities from a macro perspective for a moment:

The top in equities in 2023 was set by the bear steepener. The bottom (for now) was set by the treasury announcement.

You can go back to the macro report (link) on the exact scenarios I laid out for equities but here is how I am thinking about them: