Offsides

The Market got caught offsides this week. It happens often when trying to anticipate something that doesn't pan out. It's actually the case with most any competitive environment. People looking for an advantage tend to jump the gun, as they say. It certainly occurs in sports. Aggressive activity almost always finds someone caught offsides at some point. The Dow and S&P saw a sharp sell-off to close out the week after the Fed dug in on its higher-for-longer interest rate campaign. The Fed seems to be ignoring the economic slowdown upon us. The Stock Market had been rallying of late in anticipation of a Fed pause early in the new year. The Bond Market still thinks it happens. In fact, the Bond Market thinks the Fed will not only pause, but cut rates in '23 because recession seems all but inevitable. The yield on the 10-Year keeps sliding in December, currently below 3.5%, sending bond prices higher. The Yield Curve remains inverted, and the 30-Year yield is nearly identical to the 10-Year and much lower than the front-end of the curve. That's always a sign of trouble ahead. It's just never clear when. The Bond Market keeps signaling the Fed is making a mistake. The Fed is making a soft landing harder to happen. The Bond Market is usually right.