During a turbulent stock market week that featured wild gyrations in equity indices, particularly on the domestic front, Tematica's investing mixologists Chris Versace and Lenore Hawkins broke down the what and why behind the return of market volatility. With a stock market that, on the cusp of exiting January, was priced to perfection following a near-30% move over the prior 15 months that had stocks in truly rare air, the modest negative was bound to let some air out of the party balloons. What we have is a resetting of expectations, not so much for the domestic economy or inflation, but rather over what the Fed is likely to do in the coming months. After several years of overpromising interest rate hikes and failing to deliver, it increasingly looks like the Fed will raise interest rates three, if not four, times in 2018. That's a game changer to the recent narrative, and it's given the market a bout of indigestion.
Along the way, Tematica's mixologists weave in the impact of rising Treasury yields and the Fed being a seller of Treasuries, as the Treasury needs to float even more securities as it faces a rising deficit. They also address investors shifting capital to markets outside the US, and how the upcoming Federal government shutdown could weigh on the market. Finally, and to almost no one's surprise, they address the reality that rising interest rates will weigh on the Cash-Strapped Consumer, continuing the Middle-Class Squeeze.