The Market: Risk-Off Fever Has Broken

SPX likely setting up for the year-end rally consensus is in the process of willing into existence.

Discussion

Rates, USD, VOL, and CDXs have all turned down, indicating the risk-off fever has broken in the short-term. More than likely there will be a retest of the low in the coming days and weeks, but that low retest will likely be a major buying opportunity ahead of the year-end rally consensus is currently in the process of willing into existence.

Strong opinions, loosely held.

Yes, I can look at the full weight of the market evidence this morning and conclude an 87-style event is in process. And then within hours conclude based on the weight of the cross-asset market evidence that a year-end rally is in the works. That’s how the market works in the short-term. None of this changes the structural outlook for SPX 2500 by sometime in mid-2024. It just changes how one navigates the cyclical path to that ultimate destination.

Exhibits

Big break lower in IG CDX.

Big break lower in VVIX.

Big reversal candle in UST 30s.

Solid break lower in USD.