The narrative is getting complicated and murky

As Americans were looking forward to sending their children back to school and getting back to an ordinary work life something happened …

  • Confidence fell 6.22%
  • Current Conditions fell 6.58%
  • Expectations fell 6.16%
  • Consumers are getting gloomy
  • Retail sales were flat
  • Non-farm employment is still down 5.4%

So what’s the concern

  • The recovery’s weakness, equivalent to a sugar high
  • A stimulus package worth two trillion dollars has only had a lasting effect of less than five months


According to breakeven rates, inflation expectations for the next three years have risen to their highest level since 2006. They’re now approaching their highest point in nearly two decades.

Expectations for longer-term inflation rates are low. In comparison to 3-year averages, breakeven rates for the next 5-10 years are the lowest they’ve been since 2005.

Murkiness spells confusion and confusion spells instability for stocks.

The second largest economic engine

China’s credit tsunami, which was unleashed in 2020 to compensate for the covid shutdowns, is fading fast, local economic growth is fading fast, and a deflationary shockwave caused by China’s dwindling credit impulse is about to sweep the globe.

  • Retail sales: 17.7% yoy vs. 25% yoy expected
  • Industrial output: 9.8% yoy vs. 10% yoy expected
  • Fixed investment: 19.9% yoy vs. 20% yoy expected

Stocks have become highly correlated with inflation expectations

The correlation between stocks and bonds has jumped to its highest level since 1999, after spending the previous 15 years largely in negative territory. The 60-day correlation between S&P 500 Futures and 10-Year U.S. Treasury Note Futures hit 0.533 on Friday, the highest since September 1999, according to Bloomberg.

The increase in US CPI had a negative impact on both equities and bonds, with bond-market gauges of potential price pressures hitting multi-year highs.

In April, the Consumer Price Index rose by 0.8 percent on a month-over-month basis, far above the consensus estimate of 0.2 percent. It was the most significant increase since June 2009. Meanwhile, the core CPI, which excludes food and energy, increased 0.9 percent month over month, the highest level since April 1982.


Asset Allocation