Market Journal: Mind the IG CDX/SPX Gap

Discussion

The investment grade CDX index refuses to buy this breakout in SPOOZ, trading, not coincidentally, right where it did after Powell’s December 13 dovish presser circa 55 bps. IG CDX 55 and SPX 4700 are simpatico. Currently trading around 4900, SPX is 200 points too high relative to IG CDX.

Critical breadth thrust signals from November/December say SPOOZ ultimately move higher this year, but with the market dog-piling into growth stocks alongside rising TIPS break-evens and a reaccelerating economy, a correction down to SPX 4500-4700 looms in the wake of a hawkish Powell on January 31. Waller (below) already told us. Now IG CDX confirms.