Strategy Note /

Things I Don't Understand

  • Many things puzzle me - key among them - EU nat gas prices & risk asset response; US airline earnings & JETS down 50%

  • Some things I do understand like 2 sided markets as BTE earnings driven by hi nominal growth support stocks as FI rages

  • With a 5% FF terminal rate priced in & the Fed starting to signal pause ahead, risk asset trend reversals may lie ahead

Jay Pelosky
Jay Pelosky

TPW Founder & Global Strategist

TPW Advisory
21 October 2022
Published byTPW Advisory

The extrapolation trend we have written about continues with the 10 yr. UST selling off for the 13th straight week, mortgage rates soaring while the dollar gains vs the Yen extend for the 13th straight day to levels not seen in decades.


To be fair, the two sided market action we mused about a few weeks back is also evident – especially in how stocks are holding up amidst this bond carnage. SPY bottomed in June with the 10 yr. at 3.48% - rates are now up 90 bps from that level and yet stocks are flat to up slightly. MTD thru yesterday the Barclays Agg is down close to 3% while SPY is up 2%.


We believe this is mainly due to the other piece of the stock market puzzle – earnings. Our take, noted last week, remains that the high nominal growth environment coupled with dour expectations should make for a fairly good earnings season. So far, so good with roughly 70% of companies beating and more companies raising their forecasts than lowering them.


What we want to write about today is the frustrating part of the job – the part where one has to tangle with things one doesn’t understand and yet feels like he or she should understand or worse needs to understand. The topic stems from an enjoyable mid week lunch with one of the more thoughtful macro guys I know.