Rates Vol Says Market Regime Shift is Near [VIDEO]

Jordi Visser

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In the last macro video, Jordi asserted his belief that the probability of a regime inflection point was increasing following the Fed’s assertion that there would be “more market pain.”  In the installment of Real-Time with Jordi Visser, Jordi walks through the changes the market has undergone over the recent period and assesses overall market health indicators. Further, he highlights the stranglehold that real two-year yields and rates vol have had on risk-taking and his belief on why we are approaching a market shift.  Jordi believes that prices may have more to fall, but historical data tells us that we are nearing a regime change.

 

If you'd like to review the Bloomberg slides that Jordi refers to in this video, you may download them by clicking here

Key Takeaways:

  • Real two-year yields have gone higher, which puts pressure on the SPX due to the negative correlation over the last four years.
  • Jordi highlights the relationship between real two-year yields and the MOVE Index. As we have continued to make higher highs in rates vol, the risk premium for all assets continues to change. Jordi believes the MOVE Index could serve as a potential release valve.
  • Jordi evaluates new orders compared to revisions to make the case that the economy is weakening after a bounce in August, implying earnings should fall significantly. However, he points out that earnings revisions cannot be evaluated in isolation. Further, he believes the market is looking for signs of recession.
  • Recent rates moves have impacted the housing market and housing affordability. Jordi points out that rising rates have caused housing activity to fall sharply.
  • Finally, Jordi looks at the JOLTS print to highlight the leading indicators of a weakening labor market. Weaker housing and labor markets suggest Fed pressure will ease when they see weaker core CPI. Therefore, Jordi asserts his belief that rates vol is a key indicator to be watching.

About These Videos: Our market videos seek to provide a data-focused interpretation of the market's most critical developments. Real-Time with Jordi Visser is a recurring series produced by our President and CIO based on his macro views. The purpose of his series is to isolate macroeconomic indicators ("green marbles") that are telling the true story of the market, rather than relying on the narratives or stories often portrayed as news. Jordi is a unique thinker and tends to publish these videos during market dislocations/regime shifts when he sees areas where his views differ from consensus sentiment.

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