Charlie McElligott: US Markets Are On The Cusp Of A “Tightening Tantrum”

Tuesday, September 18, 2018
By Paul Martin

by Tyler Durden
Tue, 09/18/2018

It’s still too early to say for certain, but after stocks dumped on Monday as investors finally appeared willing to discount trade war fears (after President Trump promised that he’d be making a major trade-related announcement after the close), Charlie McElligott’s projection that September will be a month of “two halves” has aged gracefully – as has his analysis showing that US equity funds are heading for disaster now that longstanding market fundamentals are finally beginning to shift.

With the Fed’s discussion about possibly pausing rate hikes at “neutral” still ringing in the ears of many investors, Macrovoices’ Erik Townsend seemingly couldn’t have chosen a better time to interview McElligott as this week’s featured speaker on the Macrovoices podcast. During the interview (which was accompanied by a slide deck fleshing out McElligott’s observations surrounding constricting global financial conditions in greater detail), McElligott explains why investors should be worried about a reversal in the yield curve, as it portends the long-awaited unraveling of one of the longest equity bull markets in history.

To sum up, McElligott is trying to show that we are much further along in the Fed rate hike cycle than many investors believe.

While the Fed’s projections (which perennially lag the market) are still calling for another 75 basis points of hikes by the end of 2019, short-term interest rate futures are only pricing in 44 bps over the next year. A look back at the yield curve relative to Fed rate-hike expectations and US equity performance in the years leading up to the financial crash suggests how this dynamic might play out.

The Rest…HERE

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