November 14, 2022

Market Update


The market climbed 5.5% on Friday (maybe partly on a short squeeze). A basket of the most shorted stocks surged 11% >on Thursday. A market overrun by sellers is one that can see a lot of people change their mind very quickly (and result in gains greater than may be warranted).

Since 2008, Thursday was the second biggest reversal of momentum, where winners stopped winning and losers stopped losing. It was a bad day for value and a good day for growth.

The Nasdaq gained 7.5% on Thursday. That’s only happened four other times in 20 years. Two were “dead cat bounces” after Lehman, and two were during the Covid panic.


  • The Misery Index (unemployment rate + inflation rate) has improved since summer but is still high by historical standards.
  • JPM says that day traders sold $2.65B of shares during Thursday’s rally. This could be evidence of capitulation. They also suggest that small traders have lost 41% since January.

Bonds and Rates

We shifted from the Fed is going to take rates higher than expected to the Fed won’t have to be as aggressive. Mkt is pricing in 4.88% terminal rate. Also, a split government implies less gov’t spending - generating lower yields.

The near-term forward spread inverted, indicating that the market believes that the Fed funds rate will be lower in 18 months. Normally, this implies economic weakness. But now, it may just imply lower inflation (which would be good news).


  • Thursday was one of the top 10 rallies for the five-year UST in the past 30 years. All others were related to drastic Fed moves or obviously terrible times (e.g., 9/11)
  • The 30-year mortgage rate increased to 7.14% and the five-year adjustable rate was 5.87%
  • US credit card balances increased 19% in Q3 to $866B. In this inflationary environment, consumers are turning to credit. The number of new home-equity lines of credit surged almost 50% in Q3.


The IMF suggests that global consumer inflation may be peaking, but it may prove stubborn in bringing it down to a more palatable pace.

US consumer inflation expectations increased in the short and long run. Consumers expect inflation over the next five to ten years to be 3%, up from 2.9%. They see inflation rising 5.1% over the next year, up from last month’s 5%. Nearly half of all consumers said inflation was eroding their living standards.

Low unemployment could keep inflation high, but goods inflation is cooling as supply chains are improving. Spending is shifting toward services, and while the unemployment rate is still low, there are other comforting facts about inflation:

  • The NY Fed’s “underlying” inflation rate has turned down (core CPI usually follows with a lag)
  • ISM prices paid for manufacturing went below 50
  • CEOs are talking about lower input prices (commodities and raw materials)
  • CEOs are also saying that the labor market is not as tight
  • The base effect of commodities is starting to be less horrible
  • China’s Zero Covid policy is keeping demand down