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Investors are largely in defensive positions. If there is any evidence that the Fed‘s anti-inflationary actions are working, it will trigger a rush to unwind positions. That should help with the nascent bear market rally, but we remain cautious as long as the Fed continues to aggressively push through the tightening cycle. Only when the CPI is lower than 4.5%-5%, the expectation of a pause in interest rate hikes at the Fed’s March meeting is likely to be repriced.
If the CPI is higher than 6.6%, it is expected that risky assets will be hit and bond yields will rise along the curve.
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